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Factors Influencing the Choice of Micro Credit in Micro and S~all Enterprises in 

Nairobi, Kenya. 

Mnondi Moureen Martina 

112533 

A Research Proposal Submitted to the Strathmore University Business School in 

Partial Fulfilment for the Degree of Bachelor of Commerce of Strathmore University. 

Strathmore Business School 

Strathmore University 

Nairobi, Kenya 

March2022. 



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Declaration 

This research study is my original work and has not been presented for a degree or any other 

examination body in any college or University. To the best of my knowledge and belief, the 

research proposal contains no material previously published or written by another person except 

where due reference is made in the research project itself. 

Mnondi Maureen Martina ....... . ........ Name of Candidate 

~· <ls4ai1 . 
. . . . . . . . . . . . . . . . . . . . . . . . Signature 

28 /3/2022 ..... .. ........... . ........ . ............ Date 

Approval 

The research project ofMnondi Maureen Martina was reviewed and approved by the following: 

Name of Supervisor. ... b.OR.Ci.r..S.. OTl t1-LD 

School/Institution/Faculty .... . . §!?.~ 
i' J! h-

Signature ...... JiJi!!!!jt) .......... . . 

·-;1! 
Date .. . ... . .. :1 ..... f!f.J.~!A....-... 20.~2 

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Abstract 

Micro, Small, and medium businesses have long been seen as the primary engines of economic 

growth and equitable development, and they are the driving force behind the economies of many 

countries. Financing is required to assist these small enterprises in establishing and expanding 

their operations, developing new goods, and hiring additional employees or expanding their 

manufacturing facilities. Small firms, on the other hand, has a significantly more difficult time 

obtaining financing from banks, capital markets, or other credit providers than larger businesses. 

This is because they may lack collateral, has not been in business long enough to establish a 

track record, or may not have audited financial accounts like larger companies. The purpose of 

this study is to find out the factors influencing the choice of microcredit in micro and small 

enterprises. The key variables of the literature review that were examined in the study were the 

individual factors , reference group factors and product and brand familiarity factors . According 

to the research assessment, various obstacles arise when small businesses seek loans, such as 

microfinance organizations' credit rationing behavior by requiring collateral The study achieved 

a 95% response rate. A descriptive research design is adopted in this study. To ensure that the 

same businesses are not interviewed twice, a simple random sample rotational approach with no 

replacement was utilized. This guaranteed that the findings are not skewed and that the findings 

could be applied to other businesses in the area. Questi01maires addressing the three 

characteristics mentioned were distributed at random to small companies in the area. Regulatory 

and other statutory organizations should keep an eye on interest rates on loans and advances to 

ensure that they are affordable for enterprises. Where policies are lacking, they should be 

implemented to promote the expansion of both microfinance and small companies. Additional 

talent building, particularly through training and focused support programs with business owners 

on how to approach microfinance institutions, inf01mational requirements, and working closely 

with MFis to provide additional advice and support to the businesses, should be considered by 

policymakers. 

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Table of Contents 

Declaration .. ...... ... ......... .......... .. .. ...... ... ............... ..... ................. ....... ... ... .. ... ... .............. .............. ... .. ii 

Approval ........ ...... ... ... .... .. .......... ... .. ... ..... .. ... ....... .. .... ........ .... ............ ...... ..... .. ..... ... .... ...... .... ... .. ... ... .ii 

Abstract ..................... ................ .... .. ........... .... ... ... ... ... ........... .. ... .. .. ... ..... .... ....... .. ......... .................. iii 

Table of Contents ......... ..... ......... ............... ..... ... .. ... .. ... .. .. .. ... ... ..... .. ... ... ..... ...... .. ...... ..... .. ....... ..... .... iv 

List of Tables ....... .... ... ..... ....... .. ..... ....... .. .. ..... .. .. ......... ............. ....... .... ............ ..... ......... .......... ..... . vii 

List of Figures ... ..... .. .............. .. ..................... ...... ... ...... ... ................. .. ..... ... .. ... .... .... ........ .. ............ vii 

Chapter 1: Introduction ........ ... ..... ... .. ........... .......... ......... ........ .. ...... .. ..... .... .. ... .... ....... .. ........ ..... 1 

1.1 Background ............... ..... ....... ............. .. .. .... .... .... ...... .... ..... ... ........ ... .......... .... .. ...... .. .. ...... 1 

1.2 Problem statement. .. .. .......... ..................... .. ........... ........ ... .............. ... .. .. ... ........ ... ....... ..... 4 

1.3 Research Objectives ............................................ .. ....... .. ... .... ... .... ... ... ...... ...... .... ...... .. .. ... 4 

1.3.1 General Research Objectives .. ........ .. .... ... ...... ......... .. .................. .. ...... .. ..... .... .. .... ... .. .. 4 

1.3.2 Specific objectives . ........ .... .................... .... ........ ...... ........ ... ... ........... ... .... .. ....... ... .. .. 5 

1. 3 .3 Research Questions ..... ... ...... ..... ........ ....... ... ..... ......... .... ... ..... ........ ...... ... .. .. ............. 5 

1.4 Scope of the study . ... ......... ...... ... .. ... .... ....... ...................................... .. .... ....... ...... ....... ..... 5 

1.5 Significance ofthe Study ................................... .. ... .. .. ......... .... .. ... ... ..... ...... ........... ......... 5 

Chapter 2: Literature Review .................... .. .... .. .. ... ... ........................ ........ .. .. .. .. .. .. .. .... .... .......... 7 

2.1 Introduction ... ........ .... ..................................................................... ... ...... ......... .... ... ........ 7 

2.2 Theoretical Review . .... .... ..... .... ........... ....... .... .... ..... ... .......... ..... .. ... ... .. .. ... .. ........ ... .. ..... ... 7 

2.2 .1 The Engel Kollat Blackwell Model of Consumer Behavior. ............ .. .. .... .... ........ .. 7 

2 .2.2 Howard and Sheth model of consumer behavior. ...... ...... .. ........ ..... .... .... .. ..... .... .... . 8 

2.3 E1npirical Review .. .......... .... .. .... .. .... ... .. ... .... .. ...... .. ........... .. ................................ ..... ...... 1 0 

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2.3.1 Individual Factors that influence decision making ........ ..... ........ ..... .. .... .. .......... ... 10 

2.3.2 Group Factors Influence on Consumers Choice ................................ ................... 11 

2.3.3 Product and Brand Familiarity Influence on Consumer Choice ...................... ..... 12 

2.4 Summary ofliterature and research gaps .......... ....... .... ....... ... ..... .. ..... ... ... ... ........... ....... 13 

2.5 Conceptual framework ...... .. ...... ..... .... ..... ..... .... ..... ........... .... ..... ...... ...... ..... .... ....... .... .... 14 

2.5 .1 Operationalization of study variables .................. .. ........................ ..... ................... 15 

Chapter 3: Research Methodology .......... .......... .......... ......... ...... .......... ................... ....... ..... ... . 16 

3.1 Introduction . ......... ............... .... ..... .... .. ... .. .......... .... ... .. ... ... ... .. .. ....... .. ..... .... ... ........ ..... .... 16 

3 .2 Research Design ......... ... ...... ..... ... ......... ..... .. ...... ... ... ... ....... ... .. ....... .............. ..... ... .......... 16 

,., , 
.) . .) Population and Sampling . .. ..................... .................. .. ....... ............... ..... ....................... 16 

3.4 Data Collection ........ ..... ... ...... ... ..... .. ........ .... ......... ............. .. .. ................. .... .. .. ........... .... 1 7 

3.5 Data Analysis ... .. ............................ .... ..... .. ..... .... .... ...... .. ............... ...... ..... ....... ..... .... .... . 17 

3.6 Research Quality . ... ... .... ...... ..... ...... ....... ..... ... ......... ......... ......... ............. ............ ......... .. . 18 

3 .6.1 Validity, Reliability and Objectivity .. ........ ............. .. ..... ..... ..... ......... ... ..... .. ... ....... 18 

3. 7 Ethical issues ....... ............................... ...... ............... .......... .......... .. ... .. ....... .... ... ............. 19 

Chapter 4: Presentation of Research Findings ... .... ....... .... .. .......... ..... ...... .. ..... ... ...... ... ... ... .. .... 20 

4.1 Introduction . ... ..... ....... ...... ............ ....... ... ............... ................................................. ..... .. 20 

4.2 Response Rate ..... ....... .. .. .. ...... ... ......... .. ......... .. .. ... ... .. ... ................ .. ....... ....... ...... .... ....... 20 

4.3 Demographic information of respondents .......... ..... ... ..... ... .. .. ... .... ......... .. ................. .... 20 

4.3.1 Age ofParticipants ..... ....... .... ..... .... ... .... ..... ... ..... ....... ..... .... .... .. ............ ... ..... ...... .. . 21 

4.3 .2 Education Attainment. ........ .. .... ..... .. ...... ... ... .. ... ...... ... .. .. ...... ..... .... .. .... .. .. ........ ....... 21 

4.3.3 Marital status of respondent. ............ ...... ..... ................................................... ... .... 22 

4.3 .4 Business experience of respondent. .. .......... ..... ..................... .... .. .... ..... ..... ..... ... ... . 23 

4.3.5 Ownership style .... .... ........ ... ........ ....... .. .... .... .. ........ ................ .. ... ...... .. ........... .. .. ... 23 

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4.4 Micro and Small entrepreneur's participation in borrowing loan ... .. ............. .... ........ ... 24 

4.4.1 Have you accessed any loan for the last 12 months? ....................... ... .......... ... ..... 24 

4.4.2 Where did they apply the loan from? ..... ... ... ........ ... .... .. .... ... .. .... ...... ..................... 25 

4.4.3 How long does it take for the loan to be processed? ... ..... ............ .. ... .. .............. .. .. 26 

4.4.4 Was there any collateral needed? ................... .... ........ ....... ... ... ... .... ........ ............... 26 

4.4.5 Did they get the full amount? .. .... .... ............. .... .......... ...... ... .... ...... .... ............ ... ..... 27 

4.5 Descriptive Results . ... ................. ....... ... .... ....... ....... ....... ... .... ...... ... .. ... ...... ... .. .... ... .... ... .. 28 

4.5.1 Service quality ............. ........................................................................... ............... 28 

4.5.2 Convenience of the organization ................................................................... ........ 3 0 

4.5.3 Security .... .. .............. ..... .... ... ........ ....... ..... ...... ........ ... .. ... ... ....... .. ...... ..... ..... .. ...... .. .. 31 

4.5.4 How reference group affect the choice ofmicrocredit institutions ..... .. .. .............. 32 

4.5.5 How information Teclmology affect the choice ofmicro credit. .... ........ ....... ....... 33 

4.6 Con·elation Results ... ......... ... .... ............. .. .... .. ..... .. ..... ....... .. ..... .. .. : ..... ........ .. .. ..... .... ..... .. 34 

4.6.1 Effects of individual Factors on the choice of microcredit institutions ........ ... .... . 34 

4.6.2 Respondents' opinion on individual factors that affects their choice in micro 

credit organization ........... .. ..... ...... ... ..... .. .... .. ... ........... .... ............ .... ..... .. ... ..... .. .... ... .... ...... ..... 3 5 

4.6.3 Product and brand familiarity influence on choice of micro credit. ...... ....... ........ . 36 

4.6.4 Group reference factor that affects the choice ofmicrocredit institution . ... ......... 37 

4.7 Chapter Summary ...... ...... .. ........................... ..................................................... ...... ...... 38 

Chapter 5: Summary, Conclusion and Recommendations .. .... ... ..... ........................................ 39 

5.1 Introduction ..... .... .... ... .. ...... .. ... .... ... ...... ............ ....... ... ............... ..... .. .. ... .... ......... .... .... ... 3 9 

5.2 Stnninary offindings .................... ........ .. ... .. ...... ....... ............ ....... .............. ....... ....... ...... 39 

5.3 

5.3.1 

Discussions .... .. ............ ..... ... ..... ... ................. ..... .. ..... .... ........ .... .... ...... .. ......................... 40 

Effect of individual factors affecting respondent's choice in microfinance ... ..... . 41 

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5.3.2 Effect of reference groups factors affecting choice in microfinance ...... .............. 42 

5.3.3 Effect of product and brand familiarity factor affecting choice ofmicrocredit. .. .42 

5.4 Conclusions .... .. ............. .... .. ..... ..... .. .... ... .. ... .. ..... .. ....... ............... ..... ......... ..... .. .... ... ....... 42 

5.5 Recotnmendations .. .. ............. ............ ....... ........ .... ........... .. ..... ....... ... ... .... .. ... .. .. .... .. ..... .. 43 

5.6 Suggestions for Fmther Research . ........ .. .... .. .. .... .... ... ................. .......... ...... .... .... ...... .... 43 

Appendices .... .. ... .... .... .... ......................... ....... .......... .... ............................. ...... .. ... .. .. .. ... .. .............. 49 

Appendix 1 : Questionnaire ...... ............... .... .. .... ..................... .. ....... .... .. .... .. ...... .. .... .... ....... 49 

List of Tables 

Table 4. 1: Respondents Age Distribution Source: Research Data (2022) .... .... ........ .... ......... ...... 21 

Table 4. 2: Respondents Education Attaimnent Source: Research Data (2022) .. .. ........ .. .. .... .... ... 22 

Table 4. 3: Marital status ofrespondents Source: Research Data (2022) .................................... . 22 

Table 4. 4: Number of years in business Source: Research Data (2022) ......... ............................. 23 

Table 4. 5: Effects of individual factors on the choice of microcredit institutions Source Research 

Data (2022) ..... ........ ........ .............................................................. .. ... ......................... .. ........... ...... 34 

Table 4. 6:Respondents ' opinion on individual factors that affects their choice in micro credit 

organization. Source Research Data (2022) .... ..... ......... .. ... ............................... .... ... .. ...... ..... ........ 35 

Table 4. 7:Product and brand familiarity influence on choice of micro credit. Source Research 

Data (2022) ... ... .................................................... ................................................. .. ....................... 36 

Table 4. 8: Group reference factor that affects the choice of microcredit institution. Source 

Research Data (2022) .. .... .. .... ....... ........ ..... .. ... .. ........ ......... ....... ......................... ........... .............. .. . 37 

List of Figures 

Figure 2. 1: Research Variables .......................................... ................................................... ..... .. 15 

Figure 4. 1: Response Rate Source. Research Data (2022) .. .. ........ . . . ......... .... . .. . .. ..... . ..... 20 

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Figure 4. 2: Ownership Style Source: Research Data (2022) ....... ......... .. ..... ................................ 24 

Figure 4. 3: Loan Application for the last 12 months. Source: Research Data (2022) ................. 25 

Figure 4. 4: Where they applied the loan from Source: Research (2022) .. .. .. .. .... ............... ......... . 26 

Figure 4. 5: How long does it take for the loan to be processed Source Research Data (2022) ... 26 

Figure 4. 6: Collateral Needed Source Research Data (2022) .... .. .. ......... .... ......... .... .. ... ...... ......... 27 

Figure 4. 7: Did the respondent get full amount? Source Research Data (2022) .... .. .................... 28 

Figure 4. 8: Descriptive results for service quality Source Research Data (2022) .. ... .................. 29 

Figure 4. 9: Convenience of the organization Source Research Data (2022) .. ... ...... ..... ........ ....... 30 

Figure 4. 10: Security Source Research Data (2022) ........ ... ..... .. ..... ... ..... .. ... ... .... ..... ............. ...... . 31 

Figure 4. 11: How Reference group affects the choice of Micro credit institutions Source 

Research Data (2022) ................................................................ ...... ...... .......... .................... ........ .. 32 

Figure 4. 12: How information teclmology affects the choice of micro credit institutions Source 

Research Data (2022) .. ..... .... .... ....... .. ......... ...... .. ... ....... .. .... ... ............. ... ... ..... ......... .. ........ ..... .. ...... 33 

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Chapter 1: Introduction 

1.1 Bacl{ground. 

Microcredit involves lending small amount of money at low interest rates to new businesses in 

developing countries . Microfinance is divided into three broad categories which include: 

microcredit, micro-savings, and micro-insurance ( (EygmLimited, 2014) . Its main aim is to 

improve self-employment and to grow small businesses. The loan is usually for small amounts 

and given to poor people who cannot obtain traditional credit from banks or other credit sources. 

The financial sector in Kenya has been growing rapidly over the years and so is the Microfinance 

industry. This growth has seen the percentage of the financially included people rise from 

60.7% in 2006 to 74.6% in 2013. Despite the growth, access to microcredit remains a challenge 

with 22 .6% of the populace accessmg microcredit 

(FinancialSectorDeepeningCentralbankofKenya, 2013). According to the survey, female clients, 

rural residents, and the poor had the least access to credit facilities . 

Bank credit is one of the most widespread sources of finance for businesses in Kenya such as 

KCB biashara loan ("KCB", n.d) . Extension of credit facilities have been regarded as an 

important and powerful tool for raising incomes, primarily through mobilization of resources to 

more productive uses (Kimutai and Ambrose, 2013). Over the years, some Kenyans have 

encountered difficulties in obtaining bank credit more so the disadvantaged in the society. This 

has pmiially been attributable to lack of physical collateral that banks normally request for, to 

guarantee loans (NancywanjiruGaitho, 2013) . Microcredit services in micro and small 

enterprises allows the borrower to operate on extra income, making better business decisions that 

will increase profits, equally, they could avail themselves of educational or training opportunities 

that would improve their skills enabling them to demand a higher wage (White, 201 0). Micro 

and Small business owners often live below the poverty line hence need some financial 

assistance like savings, loans and insurance (AsianDevelopmentBank:, 2011) further defines 

microfinance as "the provision of a broad range of financial services such as deposits, loans, 

payment services, money transfers, and insurance to poor and low-income households and their 

microenterprises". 

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In this present day, small business owners can now access credit from banks, non-governmental 

organizations, and mobile banking. To reduce instances of delayed payment and bad debts, small 

businesses have formed groups that they use when requesting for loans, hence making each 

member liable in case one defaults to pay their pmi. This is used when members have no tangible 

assets to use as collateral. This is likely to happen when bonowers know each other' s investment 

plans and when information asymmetry exists, making it possible for a bon·ower to take 

advantage of the insurance provided by other members of the group (Fischer, 201 0). Group 

lending liability is also costlier for clients that are good credit risks pmiicularly when they are 

forced to repay the loans of the defaulting members or when clients with smaller loans become 

reluctant to guarantee borrowers with larger loans (Gine & Karlan, 2010) 

Economic theory argues that accessibility to credit makes individuals and firms better off and 

also makes it possible for economic agents to smooth consumption (MwathiRuthMuthini, 2016). 

There are numerous types of organizations that offer microcredit to micro and small businesses, 

which include; Rafode Kenya, which mostly focuses on women living in the rural area ("Rafode", 

n.d) , Safaricom which has FULIZA ("Safaricom", n.d) mobile services and some other mobile 

banking like TALA and BRANCH ("CadatesAfrica", n.d). Small business owners have to access 

the different credit services and decide which one would work better for them. 

The consumer decision process helps us understand the steps people go through when they are 

deciding whether and what to purchase. Some of these factors can be influenced by the buying 

situation or individual factors. Product and brand familiarity influences consumer choice. When 

a consumer has purchased a similar product many times in the past, his decision making is likely 

to be simple, regardless of whether it is a high- or low-involvement decision (Lumen Waymaker, 

n.d.). Suppose a customer has been using FULIZA services and is satisfied, the probability of 

them using a different service like TALA is slim. Brand loyalty also pays a major role in 

consumer' s choices. A consumer who has a habit of buying a product, he will be able to make 

decisions easily without any additional information or needing to evaluate alternatives. 

Economic status, small business owners will choose to be engage in Safaricom credit service like 

Lipa mdogo, which allow customers access its products and choose to make daily, weekly, 

partial or full payment ("Safaricom", n.d) . This service will attract more consumers and also 

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encourage brand loyalty, hence small business owners will prefer this service to another. Small 

business owner can be able to pay their debt according to their financial capability. Furthermore, 

access to a fully operational financial system can empower individuals economically and socially, 

particularly the poor people and women. This allows them to integrate better into the economy 

and contribute actively to development, (Mustafa.K.Mujeri, 20 15) . 

Reference group is a group of people with whom a person associates himself. Generally, all the 

people in the reference group have common buying behavior and influence each other 

(LumenWaymaker, n.d.). One can choose to purchase a product just because someone they trust 

recommended it to them. Consumers have certain attitude and beliefs which influence the 

buying decisions of a consumer. Based on this attitude, the consumer behaves in a particular way 

towards a product. This attitude plays a significant role in the choice of product. Humans are 

social beings, and they live around many people who influence their buying behavior. Human 

beings try to imitate other and wish to be socially accepted in the society. Hence their buying 

behavior is influenced by other people around them (Lumen Waymaker, n.d.) 

According to Kenya's Vision 2030, the vision of the financial sector is to have "A vibrant and 

globally competitive financial sector driving high levels of savings and financing Kenya's 

investment needs." This cannot be achieved without enhancing access to credit. Investments are 

a driver to economic growth. Therefore, since most investments in Kenya are financed by debt, 

constrained access to credit is an impediment to economic growth. Expanding access to banl( and 

micro credit in Kenya may consequently lead to increase in investments and hence economic 

growth. This study, therefore, presents an empirical analysis of the determinants of access to 

microcredit in Kenya (M wathiRuthMuthoni, 20 16). 

Due to evolution of teclmology and availability of information, microcredit services can be found 

online making it easier for people to access them. Many individuals will prefer Fuliza services 

because it can be accessed on any device, it does not necessarily need an app like other services. 

Small business owners had to look for alternative means to acquire finance, they would either 

bonow from close friends and families or from shylock who charge high interest rates. Studies 

indicate that informal borrowing is preferred to formal because of community trust between 

borrowers and lenders (Turkey and Kong, 201 0). Hire Purchases services has attracted many 

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Micro and Small businesses to their service. The customers are required to pay a fix deposit first 

then a payment plan is made with them according to their financial needs. Safaricom has a 

service called Lipa mdogo, which allows customers access Safaricom products like phones and 

they can pay their loan in smaller amounts like 20 shillings a day ("Safaricom", n.d). However, 

some studies have indicated that these benefits are limited, since microcredit only lend to fewer 

businesses and lower subjective well-being (Karlan & Zinman, 2016). 

1.2 Problem statement. 

Access to credit by the low-income people, women and small and medium enterprises have 

historically been a serious challenge in the world. This owes to the fact that this group of people 

have been excluded from access to credit facilities by the traditional commercial banks 

(MwathiRuthMuthini, 2016). The financial sector in Kenya has been growing rapidly over the 

years and so is the Microfinance industry. This growth has seen the percentage of the financially 

included people rise from 60.7 % in 2006 to 74.6% in 2013 . Despite the growth, access to 

microcredit remains a challenge with 22.6% of the populace accessing microcredit 

(FinancialSectorDeepeningCentralbankofKenya, 20 13). 

In this present day, small business owners can now access credit from banks, non-governmental 

organizations, and mobile banking. There has been an explosion of micro credit facilities such as 

Fuliza, M-Swari ("Safaricom", n.d) ,Bank loans such as KCB bank ("KCB", n.d) and other 

mobile loans like Branch , Tala ,Zenk:a and Okash ("CadatesAfrica", n.d) .Due to calibration of 

choice that micro and small entrepreneurs consider when which microcredit to peruse , it will be 

good to understand which particular factors will lead them to choose which particular 

microcredit product. As per identified, there are individual factors , group factors , preference 

factors and economic factors. This research intends to study this factors that influences them to 

choose one microcredit to another. 

1.3 Research Objectives. 

1.3.1 General Research Objectives. 

The general objective is to identify factors that influence the choice of microcredit in Micro and 

small enterprises. 

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1.3.2 Specific objectives. 

1. To determine how individual factors influences the choice of microcredit in Micro and 

Small enterprises. 

11. To determine how group factors influences the choice of microcredit in Micro and Small 

enterprises. 

111. To determine how Product and Brand familiarity influences the choice of microcredit in 

Micro and Small enterprise. 

1.3.3 Research Questions. 

1. How individual factors does influence the choice of microcredit in Micro and Small 

enterprises? 

11. 

111. 

How do group factors influence the choice of microcredit in Micro and Small enterprises? 

How does Product and Brand familiarity influence the choice of microcredit in Micro and 

Small enterprise? 

1.4 Scope of the study. 

The research scope was focused on Micro and Small enterprises and their relationship with 

microcredit services and understand why they prefer one particular service to other. To identify 

what these factors are and how they influence their decisions. The geographical of this research 

was limited to Nairobi especially in Kibera Slums because due to the corona virus pandemic, my 

movements will be disrupted. The Engel Kallam Blackwell Model of Consumer Behaviour. 

1.5 Significance of the Study. 

The study will help us know the importance of consumer decision and choices in pmiicular 

microcredit services ... It will help us know the importance of micro credit products and how it has 

helped improved the living conditions of Micro and Small Business owners. This study may help 

upcoming institutions that provide microcredit services to small businesses to know how to 

increase their sales volume by focusing on customer's wants and needs and improving on 

customer care rather than focusing on profit maximization. 

This study will add into the pool of available literature concerning choice of microcredit services 

among small business owners. Literature is an important tool of research since without it; 

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research would probably not be possible. It will also draw policy implications which will help to 

inform policymakers on policy options that will enhance access to microcredit in Kenya. 

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Chapter 2: Literature Review 

2.1 Introduction. 

This chapter is a review of literature on the Factors that influence the choice of microcredit in 

Micro and Small entrepreneurs. Specifically, it presents a theoretical review, an empirical review 

of the literature, identified research gaps and the conceptual framework. 

2.2 Theoretical Review. 

The theoretical foundation for this study was based on The Engel Kollat Blackwell Model of 

Consumer Behavior and Howard Sheth model of consumer behavior. These theories guide the 

study in examining the rationality of choice of the product by the consumer under conditions of 

incomplete information and reduced processing capability (KrzysztofWozniak, n.d.). 

2.2.1 The Engel Kollat Blackwell Model of Consumer Behavior. 

The Engel Kollat Blackwell Model of Consumer Behavior was created to describe the increasing, 

fast-growing body of knowledge concerning consumer behavior. The Engel-Kollat-Blackwell 

(EKB) theory was aptly termed a decision-process model because its focus was largely placed 

upon delineating those mental activities consumers pursued in aniving at a decision to purchase, 

repurchase, or reject a product. In focusing upon decision processes, instead of iru1ovation 

adoption or problem solving, the EKB model added a new twist to the heroic quest narrative, 

while still adhering to its central theme (ElizabethCHirschman, 2021 ). 

The authors distinguish 5 consecutive stages of the decision-making process: Identification ofthe 

problem - involves generating consumer needs, consumer sees a gap between the ideal and the 

ctment state of things. Search for information how to solve problem - consumer looks 

for information about available opportunities, search begins with internal sources (own memory), 

based on experience or from an external source. Assessment of options - consumer examines and 

assesses the possible variants of choice to make the best decisions; this process is influenced by 

such factors as: criteria for assessing options, beliefs, attitudes, intentions, and circumstances. 

Choice - purchase decision arises from the assessment of goods available on the market. 

However, the decision might also be affected by: change of income, price family situation of the 

consumer, (Wozniak, 2019) . According to (SamithambySenthilnathan, 29 Nov 2012) ,the model 

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created by Engel, Kollat and Blackwell is a process that is used to evaluate the way of decision 

making by consumers. The model (known as EKB model) implies consumer behavior as a 

continuing process, which includes 'recognition of a problem, information gathering, evaluation 

of alternatives, decision making and post purchase '. 

2.2.2 Howard and Sheth model of consumer behavior. 

(DiloginiKurunathan, 20 19) describes this model as a complex process which is applicable to 

individuals and concepts of learning, perception and attitudes influence consumer behavior. This 

model has four sets of variables which are: input, perceptual and learning constructs, outputs and 

exogenous or external variables. It shows that the consumer behavior is concepts of learning, 

perception and attitudes influence consumer behavior. 

It assumes that the consumer behaves rationally during purchase, process is repeatable and is 

result of incentives which have their source in the environment (input variables). It consists of 

four main groups of variables: Input variables, like stimuli arising from the marketing activities 

and social environment of the consumer. Include three different types of stimuli, which are: 

significant incentives - physical characteristics and the attributes of a product, such 

as price, quality, originality and accessibility, brand characteristic defined as the ambiguity of the 

stimulus display is another influence on the flow of information into the buyer's mental process. 

It is the lack of clarity of the neural messages incited by the physical object or event stimulus 

displayed which are permitted to enter the buyer's body via attention (JamesTaylor, 2021) . 

Symbolic incentives - verbal or visual characteristics of the product, form of product perceived 

by buyer/customer, effect of advertising and promotion messages used by seller. Social stimuli -

whose source is the social consumer environment, family, reference groups, and society in 

general (Wozniak, 2019). According to (Duan, July 2016) symbol and society, they divides it 

into three factors ;the input factors , in this phase the consumer has high uncertainty and low 

confidence; In the concept-obtaining phase, the consumer starts to use category knowledge to 

judge and learn, affected by internal factors of perception and learning, the consumer' s 

uncertainty is reduced and the confidence is strengthened. In concept~utilization phase, the 

consumer has formed the category cognition and has paid attention to the choice of specific 

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commodity, and under the influence of the output factor, he or she forms the actual purchase 

behavior. 

Hypothetical constructs, including the psychological variables influencing consumer behavior 

during the decision-making process. It is regarded by the authors as abstract, not defined and not 

intended directly. They distinguished two main constructs : Perceptual constructs - describe 

obtaining and processing information, attention to stimulus, sensitivity to messages, receptivity, 

blocking information, prejudice. Learning constructs - how buyer forms attitudes, opinions, 

and knowledge influencing his buy indecisions, evaluation after purchase, brand comprehension 

(Wozniak, 2019) . 

Output variables: purchase intention, attitude, brand perception and attention. They are 

noticeable effects of internal processes, for example: decision to implement the purchase, 

disclosure of customer view and interest, as well as the declaration of other activities. The most 

important output variable from the point of view of marketing is actual purchase because it 

involves carrying out activity based on consumer preferences. Hierarchy of output variables 

include Attention - scope of information accepted after exposing buyer to stimulus. 

Comprehension - amount of information processed and stored 111 buyer mind. Cognition -

fom1ing attitude towards products. Intention - to buy or not to buy a product. External 

variables that have not been presented in the Howard and Sheth model and are not direct part of 

the decision-making process, however, have a significant impact on consumer decisions and m·e 

used in marketing activities as a criterion for segmentation. These include such variables as: 

value of purchase for the buyer, the character traits of the consumer, membership of a social 

group, the financial status of a consumer, the pressure of time (Wozniak, 20 19). 

According to (RohithReddipalli, 29 August 2020),the purchase decision is considered as Output. 

The variables under output are - Attention, Brand Comprehension, Intention and Purchase. 

Output variables are the possible responses to input stimuli mediated by individual intemal 

influences. Output variables are the possible responses to input stimuli mediated by personal 

intemal influences. After using the product, if the consumer is satisfied, it will enhance his 

positive attitude and improve his brand understanding 

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2.3 Empirical Review. 

2.3.1 Individual Factors that influence decision malong. 

Social class can have a profound effect on consumer purchase and spending habits. Perhaps the 

most obvious effect is the level of disposable income of each social class. Generally, the rich can 

purchase more consumer goods than those with less income, and those goods are of higher 

quality (LumenWaymaker, n.d.). 

Convenience: Convenience is defined in different ways according to vanous authors, but in 

simple understanding, convenience refers to the location ofthe banl<. (okoye, 2013)Indicated that 

convenience is one of the factors which influence the decision of customers when selecting a 

microfinance institution. When a microfinance has convenience location it will give it the 

advantage to lord over its competitors who do not have convenience location to their clients. But, 

according to (Mosaclzineldin, 2011) who stated that, convenient location of micro finance might 

not influence the decision of choosing a microfinance by customers that much for the reason 

being that customers who are embraced with technology can do their payment via different 

methods such as debit card, online banking, credit cards and mobile banking. Based on the 

contradiction between the scholars this paper considered convenience as a factor that influences 

SME"s choice of Micro-finance institutions. 81.8% of the 100% sample collected, agree to 

proximity to home, 75.5% agreed to proximity to the workplace and 69% of the respondents 

agreed that these variables influence SMEs choice of MFis (EbenezerAppiah, 20 19). 

Service Quality: Some customers of microfinance generally consider lower interest rate as less 

important than service attributes of efficiency, polite and friendly staff, and pace of transaction 

(Maiyaki, 2011). (ShumailaSharif, 2017) Revealed that service quality of a microfinance is the 

single and most significant factors that will affect the decision of selecting a microfinance by 

customers. However, Genard and Cunningham (2004 ), (Zulfitri, 20 18) claim that even 

sometimes a banl( offering a wider range of product services does not necessarily influence the 

result of a customer selecting a banl( because some customers would like to become multiple 

bank users rather than single bank users. The contradiction between the scholars lures the study 

to measured service quality as a factor that influences SME"s choice of Micro-finance 

instih1tions. In Ghana, Owusu-Frimpong (1999) has conducted a survey on patronage behavior of 

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bank customers usmg an informal telephone interview with SIX semor bank managers 

(EbenezerAppiah, 2019). 

Price of Product and Services: Fees are being charged for the services and apply interest charges 

on loan, as well as paying interest on certain accounts which creates a wider meaning for pricing 

in the banking industry (Zulfitri, 2018). Customers normally want to have the best product and 

services at the lowest price from the financial institution. They would compare prices, cost or 

benefits of microfinance that offers the similar products and services and opt for the 

microfinance that they perceive to provide them higher benefits with low cost which meets their 

preferences (Aregbeyen, 2011 ). Therefore the price of products and service is found to be an 

impm1ant factor for a customer in their microfinance selections, as customers expect and willing 

to pay the price for the better product and services quality for it (Mabin & Balderstone, 2003). 

This factor was therefore considered to assist the researchers to investigate if the prices of 

products is a factor that influences SMEs choice of Micro-finance institutions. 

Security: There are some basic things that customers will consider when choosing a 

microfinance. To make a customer have a strong sense of feeling towards the operation of the 

microfinance, the microfinance has to ensure that trust is one of its hall marks in the finance 

circle because trust is a key that bridges the relationship of the micro finance and the customers. 

Some researchers emphasize that trust is very vital in a relationship. When a microfinance 

security is secured, it will gain the confidence and trust of the customers. Okoe, Osarenkhoe, and 

Hinson (2013), also found that there is a positive relationship between bank security and the 

decision to select a financial institution by customers. This factor was therefore considered to 

investigate if security is a factor that influences SME's choice of Micro-finance institutions. In 

Ghana, Owusu-Frimpong (1999) has conducted a survey on patronage behavior of bank 

customers usmg an informal telephone interview with SIX senior bank managers 

(EbenezerAppiah, 20 19). 

2.3.2 Group Factors Influence on Consumers Choice. 

Reference groups are groups that consumers compare themselves to or associate with. Reference 

groups are like opinion leaders in that they can have a profound influence on consumer behavior. 

Reference groups are considered a social influence in consumer purchasing. They are often 

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groupmg that consumer will look to make purchasing decisions. So, if a reference group 

endorses a product, either tlrrough use or statements about the product, those that look to the 

group will often purchase that product. On the other hand, if a reference group disapproves of a 

product, those that associate with that group will probably not purchase the product. Our 

purchase decisions are influenced by any number of people or groups. We often look to opinion 

leaders for help in our consumer decisions. Opinion leaders are usually people who are more 

knowledgeable about a certain product or service than the average consumer. As such, opinion 

leaders can shape how a product is viewed (LumenWaymaker, n.d.). 

2.3.3 Product and Brand Familiarity Influence on Consumer Choice. 

Reputation: Many economic theories have facilitated in confirming the imp01iance of reputation 

in the strategic processes of an organization, but the resources-based view (Pankaj .M.Madhani, 

201 0), demonstrations the capability of tllis intangible resource to generate superior profits, and a 

key sustainable competitive advantage for corporate success. Following this theory, reputations, 

as indicators of quality of the set of managerial actions, are a valuable resource hard to imitate, 

which plays a crucial role in times of crisis (EbenezerAppiah, 20 19) . This paper climaxes the 

fact that a well-integrated application of technology and staff aids to size customer loyalties by 

creating deeper and fuller customer relations. Based on the theory, reputation was considered as 

a factor that influences SME's choice of Micro-finance institutions in the municipality. 

In Ghana, Owusu-Frimpong (1999) had conducted a survey on patronage behavior of bank 

customers using an informal telephone interview with six senior bank managers. Findings from 

225 respondents discovered that convenient location and friendly employees are the most 

imp01iant attributes determining the image of the banks for their selection decision pursued by 

the size of the bank and profit-minded services (EbenezerAppiah, 2019). 

Information Technology: Teclmology refers to the modern life information technology that 

characterized by ever-changing evolution to assists and develops a better financial activity in the 

banking industry. Khawaja and Manarvi (2009) found out that financial institutions such as 

microfinance which uses teclmology in its operations reduce the burden on manual input on 

registers and ledgers with customers that were served through cheques and pay orders, with the 

introduction of Automatic Teller Machines (ATMs) for interacting with consumers and provide 

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better services. Suganthi (2001), and Idowu et al. (2002), concluded that these improvements 

have positively affected the growth ofthe entire banking and finance industry. It seems apparent 

that technological innovation affects not just banking and financial services, but also the 

direction of an economy and its capacity for continued growth. hence need to be considered a 

factor that influences the choice of MFI"s. £-banking enables the financial institution to deliver 

its service easily to its high-end customers, to make the system user friendly to all SMEs, 83.8% 

of the respondents agree to the use of. Online banking service, 76.8% prefer phone banking 

services, 65.3% of the respondent agreed that availability of ATM in MFI influence their choice 

of MFI (EbenezerAppiah, 20 19). 

Interest rates the rate at which financial institutions can lend to one another directly impacts 

consumption at the household level. The data obtained from Federal Reserve indicated that out 

of 200 samples 135 supp01ied that low interest rate will persuade them to choose one financial 

source to another, hence better control for consumption levels by identifying the optimal interest 

rate. This study suggests that lower interest rates lead to higher consumption levels 

(LacyChristensen, 2012). 

2.4 Summary of literature and research gaps. 

Based on the literature review in this study, it can be argued that varied factors affect micro and 

small enterprises decision to partake in a microcredit survivalist explains the factors that SMEs 

consider to be important when choosing a Microfinance and how those criterions are prioritized 

according to their importance. SMEs are concerned about the security of their investments when 

the degree of bank security is higher the probability of choosing a bank by customers will be 

higher. The study concludes that the reputation of a business is also essential to its survival, the 

trust and confidence of the SME can have a direct and profound effect on microfinance 

institutions (EbenezerAppiah, 20 19) . That access to loans by small business is essential for the 

survival and expansion of the businesses cannot be over emphasized (ElizabethAkoth, 20 12) . 

The literature cited the factors that contribute to micro entrepreneurs' choices and decisions. 

Some of the choices put into place by micro and small entrepreneurs are, interest rates, 

reputation of the institution, convenience, and service provided. Most of the decisions are 

influenced by individual and Brand familiarity research also shows there is limited empirical 

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literature on group factor that affects consumer decision. Therefore, to fill in the above gap, the 

researcher will collect sufficient data on factors that affecting the choice of microcredit in micro 

and small enterprises. 

2.5 Conceptual frameworl{ 

This conceptual framework shows the relationship between the independent variables 

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2.5.1 Operationalization of study variables 

Individual Factors 

Social class 

Convenience 

Security 

Product and Price Quality 

Service Quality 

Group Factor 

Reference groups 

Choice of Microcredit 

Product and Brand Factor 

Reputation 

Information Teclmology 

Interest rates. 

Independent Variable. Dependent 

Figure 2. 1: Research Variables 

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Chapter 3: Research Methodology. 

3.1 Introduction. 

This chapter outlines the method that will be used in the collection of data that will be used to 

answer the research questions outlined in Chapter 1. The section described the various methods 

through research design, data collection and sources, as well as the analysis of this data and, it 

further will have to consider the quality of research and ethical matters throughout the entire 

research process. 

3.2 Research Design. 

The study will take a mixed-method research design to determine the factors that influence the 

choice of microcredit in micro and small enterprises. In this mixed-method approach, both the 

qualitative and quantitative research methods will be used to determine the impact factor that 

influence consumer choices. This design is informed by Yin (2014) who argues that a mixed­

method inquiry is necessary to investigate a phenomenon in depth within its real-life context and 

in particular, this method is most relevant when the phenomenon under question is not 

sufficiently theorized. Other research methods like the exploratory case studies are not suitable to 

use in this research because they usually focus on a single case, and interest is particularly strong 

when existing theories are incomplete or unable to provide a satisfactory representation of the 

phenomenon (Yin, 2014). 

3.3 Population and Sampling. 

This study will be a cross sectional survey of micro and small business done in Kibera division, 

to generate a population of study in the area. Target population consisted of 200 members 

distributed in all the area. 

Kibera, the infamous slum in Nairobi-Kenya's capital, is viewed as "the biggest, largest, and 

poorest slum in Africa. Its estimated population is a stunning figure of 700,000 to 1 million 

residents. Given that the surface area of Kibera is 2.38 km2, the density for 700,000 inhabitants 

would be about 300,000 inhabitants per square kilometer (Taupin, 2009). Kibera is also refened 

to as the "bus-stop", as it is one of the settlements where people first settle when they enter 

Nairobi from their rural homes in search of better livelihoods. Its proximity to Nairobi's Central 

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Business District (CBD) and the Industrial Area also makes it attractive to many unemployed 

and low-income eamers who start micro and small enterprises to supplement their income from 

casual work. Kibera is also a main supplier of cheap casual labor to the CBD and Industrial area, 

(Nyamwaro, 2009) . Kibera is divided into twelve villages namely Soweto, Lindi, Laini Saba, 

Mashimoni, Makina, Katwekera, Kianda, Kambi Muru, Kisumu Ndogo, Kichinjio, Raila, and 

Silanga (Kamau, Ibid). The samples will be collected in each village to ensure unif01mity. The 

researcher used purposive sampling in selecting cases for this study. Purposive sampling IS 

mainly used due to lack of accurate and up-to-date sampling frames (Nyamwaro, 2009). 

3.4 Data Collection. 

Both qualitative and quantitative data collection method will be used. Secondary data will be 

gathered through perusal of all documents and data from business associations where available, 

relevant records and literature on the topic and study area. Primary data will be gathered through 

personal interviews with businesspeople using a structured questionnaire to obtain quantitative 

data. A semi-structured discussion or interview guide will be used to collect qualitative data from 

the key informants. Throughout the research period, additional information will be collected 

through direct observation, where the researcher's eye will be used to collection data. 

The researcher will administer the questionnaires to the respondents. This minimized information 

bias in cases of illiteracy among respondents. In this case, face-to-face interviews using 

unstructured questionnaires with pre-coded/closed and open-ended questions will be conducted. 

3.5 Data Analysis. 

The analysis of data in this study will be guided by the research objectives and questions as well 

as the conceptual framework in Chapter 2. The dependent variables will be the objects of the 

research and comprised of the individual factors, group factors and Product and Brand Factor. 

This study will yield both quantitative and qualitative data. Microsoft Excel version 2010 will be 

used to carry out all the manipulation, presentation, and analysis of data in this study. Qualitative 

data from in-depth interviews were analyzed using content analysis. The output will be presented 

in this paper mainly in form of descriptive statistics (tables), frequency distributions and other 

measures of central tendency. 

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3.6 Research Quality. 

3.6.1 Validity, Reliability and Objectivity. 

(Leung, 2015 July) defines validity in qualitative research as the appropriateness ofthe processes, 

tools, and data used in a study. This study ensured validity by ensuring that the sampling 

technique used, the methodology used and the analysis of data was appropriate in this study .. 

Additionally, validity was enhanced by ensuring that the research questions were in line with the 

desired outcome. Reliability, on the other hand, refers to the consistency of the processes used 

and the results obtained. 

The data for the study will be collected through questi01maires and document analysis. Desk 

study on the relationship between micro and small business owners and their use of microcredit 

services will be conducted prior to heading out on the field. Data will be collected through key 

informant interviews and a questionnaire. Questionnaires will be used because they allow 

respondents to express themselves while staying anonymous, resulting in more candid responses 

than a face-to-face interview. 

The strategy which will be utilized to get a holistic view of the research community through 

participant observation and field site visits . It entailed personal observations at field sites, 

because it gave information of the context in which events occur and allowed the researcher to 

notice things that participants themselves were not aware of or hesitant to reveal. Participant 

observation yielded a deeper understanding than interviews alone. The researcher in this case 

acted as a full participant in the situation with a known identity. Both closed-ended and open­

ended questions were used (SheilaKituyi, 2012). 

According to (Taherdoost, January 2018) , an instrument is said to be reliable when it produces 

accurate and consistent results over and over under the same condition. In tllis study, reliability 

was involved constant data comparison and peer reviews from both the ethical committee and 

supervisor. Prior to the study, nine microbusiness owners will be given the questi01maires that 

were created for it. The data that will be gathered and evaluated throughout the pilot study will 

provide the researcher with an understanding of the nature of predicted outcomes when the study 

was concluded. 

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3. 7 Ethical issues. 

Any piece of research must adhere to the critical principles of honesty and integrity, as well as 

aim to conduct research that is sensitive to all factors . While conducting this research, it was also 

vital to maintain dignity, safety, and transparency. 

The concept of voluntary pat1icipation was followed, and respondents are not compelled to take 

part in the study. Confidentiality is preserved during the research. Individual authorization from 

their various workplaces and persons expecting to participate in the study are requested. The 

consent and goal of this research project are explained to the respondents . The identities of the 

responders will be changed to protect their privacy. 

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Chapter 4: Presentation of Research Findings. 

4.1 Introduction. 

This chapter presents the analysis of the data collected during the survey. The return rate of the 

questiom1aire, demographic infonnation of the respondents, data presentation, and interpretation 

of findings are all covered in this chapter. 

4.2 Response Rate. 

One hundred and fifty questioru1aires were administered out of which one hundred and forty­

three questionnaires were successfully filled and retumed. 

Response Rate 

Responded Non response EJ lil 

-------------·---------

Figure 4. 1: Response Rate Source. Research Data (2022) 

4.3 Demographic information of respondents. 

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This part deals with the respondents' demographic information, such as marital status, religious 

affiliation, age, and educational attainment. 

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4.3.1 Age of Participants. 

The respondents were also asked to state their age, with the goal of determining whether their 

age int1uenced their choice of microfinance. 

Table 4. 1: Respondents Age Distribution Source: Research Data (2022) 

Age Frequency Percentage 

Between 18-28 years 35 24.4 

29-38 years 65 45.5 

39-48 years 25 17.5 

49-58 years 18 12.6 

Total 143 100 

Table 4.2 shows that most people who own small and medium enterprises are age between 28-38 

years, followed by aged bracket between 18-28, this group belongs to people who have stmied or 

are stmiing their own businesses. Least percentage belonged to age bracket between ages of 49-

58 years. Most of the people here are already retired and are tired of working. 

4.3.2 Education Attainment. 

Table 4.3 shows that most people who pmiicipated in the study have primary education followed 

by those with secondary education. Those with diploma education comprised the least 

respondents. Since the sampling was done randomly the results in table 4.3 implies that majority 

of the people who operate micro and small enterprises in Kibera have Secondary education as the 

highest level of education. 

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Table 4. 2: Respondents Education Attaimnent Source: Research Data (2022) 

Level of Education Frequency Percentage 

Primary 47 32.8 

Secondary 53 37 

Certificate 17 11.9 

Diploma 12 8.4 

Bachelor' s degree 14 9.8 

Total 143 100 

4.3.3 Marital status of respondent. 

The respondents were asked about their marital status to see if their marital status influenced 

their decision to participate in micro-finance for their business. The results are as shown in Table 

4.4. 

Table 4. 3: Marital status of respondents Source: Research Data (2022) 

Marital status Frequency percentage 

Married 95 66.49 

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Singled 14 9.8 

Divorced 14 9.8 

Widow or widower 20 13.98 
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Total 143 100 

4.3.4 Business experience of respondent. 

Table 4.5 indicates that majority of respondents have been in business for more than 6 years 

followed by those who have been operating for less than five years. This indicates that most 

respondents have been in business for more than five years and can thus report on their firms 

based on their experience. 

Table 4. 4: Number of years in business Source: Research Data (2022) 

Number of years Frequency Percentage 

Less than 5 yrs . 53 37 

Between 6-10 yrs. 57 39.9 
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Between 11- 15 yrs. 23 16 

Over 16 yrs. 10 6.99 

Total 140 100 

4.3.5 Ownership style 

From the pie chart below, we can conclude that majority of micro and small entrepreneurs work 
alone. 

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,----------------------· ---- ---- ---------·-· --l 
Ownership style 

I 

111 sole ownership Patnership ! 

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Figure 4. 2: Ownership Style Source: Research Data (2022) 

4.4 Micro and Small entrepreneur's participation in borrowing loan. 

4.4.1 Have you accessed any loan for the last 12 months? 

The chart below indicates that 95% of micro a small entrepreneurs have accesses loan in the last 

12 months while 5% have not. 

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loan application for the last 12 months 

Yes No m 

·---· ·• ·--··-··-·-----------·- ______ j 

[ Figure 4. 3: Loan Application for the last 12 months. Source: Research Data (2022) 
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4.4.2 Where did they apply the loan from? 

The Figure below shows that majority ( 40%) of entrepreneurs apply loan through their phones 

because it is easier and faster, 30% from Sacco and Chama and least from the bank 

r-------------- -------- ----------·-------

Where they applied their loan from 

c Sacco Microfinance Institution Bank m Lending app on their phones 

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Figure 4. 4: Where they applied the loan from Source: Research (2022) 

4.4.3 How long does it take for the loan to be processed1 

The figure below indicates that 40% of the people's loan is processed immediately as majority of 

them use Fuliza. 30% less than a day and three least is bank which takes up to one month for 

their loan to be processed. 

,------~-----~--- --- ---- ---· . ------ ----------- - ------, 

, How long does the loan to be processed / 

l c lnnidietly Less than a day 1-2 weeks Ill More than 2 weeks 

---

Figure 4. 5: How long does it take for the loan to be processed Source Research Data (2022) 

4.4.4 Was there any collateral needed? 

88% of people did not have to put up collateral while applying for loan while 12% needed 

collateral especially those who applied loan from the bank. 

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Colateral needed 

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Figure 4. 6: Collateral Needed Source Research Data (2022) 

4.4.5 Did they get the full amount? 

Major of the respondent do not receive full amount of loan applied while 1% got full amount. 

The respondent who got full amount got their loans from Chama' s and Sacco. 

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Did they get full amount 

1% 

11 Yes No c 

----·-1 

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Figure 4. 7: Did the respondent get full amount? Source Research Data (2022) 

4.5 Descriptive Results. 

The study examined how individual, group and product and brand familiarity affect the choices 

of micro finance . The pmiicipants were presented with various statements and asked to rank them 

using a 5-point Likert scale. The analysis of the responses was presented using measures of 

central tendency: mean and standard deviation. 

4.5.1 Service quality. 

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100% ----·-y--~~---------r-~~--------p~~~-------~--~-----

90% 

80% 

70% 

60% 

50% -

40% 

30% 

20% 

10% -

0% 

Reliability responsivenes assurance empathy Tolerance 

Series 1 Series 2 Series 3 

-. - --- --·-·-----------------

Figure 4. 8: Descriptive results for service quality Source Research Data (2022) 

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The review of responses showed agreement among respondents that organization they apply loan 

to, they can rely on them in times of need (70%). The results also indicate that the organizations 

respond moderately depending on the situation and fast (50%). The respondent confirmed that 

the organizations don't show enough empathy to the customers (35%). The respondents lastly 

show that the organization tolerate the customer's opinions and they deliberate on how to come 

up with an understanding on how to solve the problem. 

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4.5.2 Convenience of the organization. 

100% 
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80% 
70% 
60% 
50% 

' 40% 

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30% 
20% 
10% 

0% 

Chart Title 

Series 1 Series 2 Series 3 

Figure 4. 9: Convenience ofthe organization Source Research Data (2022) 

The research indicates that respondents will choose organizations that are available on their 

phones than those that need them to visit their office. Least number of pmiicipants do not care 

whether the organization operates online or physical, mostly this group are old age who prefer 

the traditional way of applying loans. 

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4.5.3 Security. 

100% 
90% 
80% 
70% 
60% 
50% 
40% 
30% 
20% 
10% 

0% 

L_ --

Chart Title 

Series 1 Series 2 Series 3 

Figure 4. 10: Security Source Research Data (2022) 

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The research indicates that the respondents highly trust the organization. They strongly believe 

that they will choose an organization that they feel that their personal information will be safe. 

They prefer a company which upholds confidentiality and integrity in their daily operations. 

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4.5.4 How reference group affect the choice of microcredit institutions. 

100% 
90% 
80% 
70% 
60% 
SO% 
40% 
30% -
20% 
10% 

0% 

Chart Title 

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Ser._ie_s 1--Se~~~~~~~~------------------' 
Figure 4. 11: How Reference group affects the choice of Micro credit institutions Source 

Research Data (2022) 

The research indicates that reference groups have a big impact on the respondent ' s choices. 

Majority of the respondent will either like or dislike the organization based of their reference 

groups. 

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4.5.5 How information Technology affect the choice of micro credit. 

100% 
90% 
80% 
70% 
60% 
50% 
40% __ ,,,.. 

30% 
20% 
10% 

0% -----

L ___ .- --·--

Chart Title 

Series 1 Series 2 &11 Series 3 

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Figure 4. 12: How information technology affects the choice of micro credit institutions Source 

Research Data (2022) 

The research data indicates that the respondents prefer microcredit organizations that have the 

latest information technology because it reduces their waiting time for loan pressmen process. 

They redrew loans easily available on their mobile phone. They also dislike applications that 

have endless forms to be filled with no reliant outcomes and prefer aps that take less time to load. 

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4.6 Correlation Results 

The study aimed at establishing the effect of individual, reference group and product and brand 

familiarity on choice of micro credit institution. The research adopted correlation analysis, and 

the results are as indicated. 

4.6.1 Effects of individual Factors on the choice of micro credit institutions. 

Table 4. 5: Effects of individual factors on the choice ofmicrocredit institutions Source Research 

Data (2022) 

Individual Micro and Small 

characteristics enterprise choice 

in microcredit 

Individual characteristics Individual 1 .097 

correlation 

Sig, ((2-tailed) .162 

N 143 143 

Micro and Small enterprise Individual .097 

choice in microcredit correlation 

Sig, ((2-tailed) .162 

N 143 143 

The figure above indicates a positive conelation between individual factors and choice of micro 

credit institution. The research shows a positive conelation of 0.097 between individual factors 

and choice ofmicro credit. According to UN 1995 study Maia and Otiende (2004), education, as 

one of personal traits, is critical in transforming the status of women and boosting their 

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empowerment, implying that the amount of education is important. has an impact on women's 

economic engagement through defining both their livelihood and their ability to work? 

Participation in the labor force and the labor market's competitiveness 

Social class can have a profound effect on consumer purchase and spending habits. Perhaps the 

most obvious effect is the level of disposable income of each social class. Generally, the rich can 

purchase more consumer goods than those with less income, and those goods are of higher 

quality (Lumen Waymaker, n.d.). According to the study people who belong to the lower social 

class mostly use mobile loan because it is easier and requires no collateral. The high-class people 

cam access massive loan through the banlc because they have large amount of collateral to 

exchange for the loan. 

(ShumailaSharif~ 20 17) Revealed that service quality of a microfinance is the single and most 

significant factors that will affect the decision of selecting a microfinance by customers. 

However, Gerrard and Cunningham (2004), (Zulfitri, 2018) claim that even sometimes a bank 

offering a wider range of product services does not necessarily influence the result of a customer 

selecting a bank because some customers would like to become multiple bank users rather than 

single banlc users. 

4.6.2 Respondents' opinion on individual factors that affects their choice in micro credit 

organization. 

Table 4. 6:Respondents' opinion on individual factors that affects their choice in micro credit 

organization. Source Research Data (2022) 

Individual Factors Yes No 

Social class 60% 40% 

Convenience 90% 10% 

Security 70% 30% 

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Price of Product 90% 10% 

Service quality. 65% 35% 

The table above indicates some individual factors that inf1uences the choice of microcredit 

services on the respondents. Convenience and price of the product are the main factor upheld 

when choosing which microfinance to go with. Followed by security, service quality then lastly 

social class. 

4.6.3 Product and brand familiarity influence on choice of micro credit. 

Table 4. ?:Product and brand familiarity influence on choice of micro credit. Source Research 

Data (2022) 

Product and Brad Micro and Small 

familiarity enterprise choice 

in microcredit 

Product and Brand Product and 1 .096 

familiarity brand 

correlation 

Sig, (2-tailed) .164 

N 143 143 

Micro and Small enterprise Individual .096 

choice in microcredit correlation 

Sig, (2-tailed) .164 

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143 143 

The figure above indicates a positive conelation between product and brand familiarity with 

consumer choices. This indicates that an organizations familiarity to its customers strongly 

affects their choices. 

4.6.4 Group reference factor that affects the choice of microcredit institution. 

Table 4. 8: Group reference factor that affects the choice of microcredit institution. Source 

Research Data (2022) 

Group reference Micro and Small 

enterprise choice 

in microcredit 

Group reference Group 1 .360 

correlation 

Sig, (2-tailed) .157 

N 143 143 

Micro and Small enterprise Individual .360 

choice in microcredit conelation 

Sig, (2-tailed) .157 

N 143 143 

The figurer above indicates a very high positive con·elation between reference group and 

consumer choices. 

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4. 7 Chapter Summary 

The fourth chapter of the study presents the research findings. The results indicated there is a 

positive and significant conelation between individual factors which is at 0.097 and consumer 

choices, hence it is safe to say that individual factors influence consumer's decision making. 

There is also a positive correlation of 0.097 between group factors and consumer choices. 

Product and brand familiarity ' s correlation is at positive 0.360 which indicates that it also plays a 

major role in consumer's choices. 

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Chapter 5: Summary, Conclusion and Recommendations. 

5.1 Introduction. 

The findings and conclusions of the study are summarized in this chapter. The summary, 

conclusions, and suggestions are all presented in accordance with the study's goals . In addition, 

the chapter makes recommendations for future research. 

5.2 Summary of findings. 

This study is meant to determine what factors influences the choice of microcredit in micro and 

small entrepreneurs. The objective of this study focuses on individual factors , group factors and 

product and brand familiarity factors. The study used a descriptive survey approach, with data 

collected via questionnaires and an interview guide for key informants, which comprised of 

small entrepreneurs like people who own kabadas and local vendors. The target population was 

200 people in kibera but we managed to get only 143 which was a good number of respondents. 

Tlu·ough data analysis the study established that; Majority of the respondents fall under the age 

bracket of 29-35 years, and the respondent below 29 years have not yet gotten the grasp of their 

business yet but are pushing towards having a pe1manent job. I t has been established that 

66.49% of the respondents are man·ied, some have up to four children. Those who are widowed 

constitute the least number. This implies that the respondent ' s partners play aa role in 

maintaining and growing their business. 

The serval indicates that 99% of the respondent are sole owners though they get help from their 

family members. The respondent also indicated that most of them (3 9. 9%) have had experience 

in the business for more than six years. The study also indicates that those who participate in the 

loan don't get the full amount because of tax implied. 30% of the respondent apply on tlu·ough 

heir Sacco's and Chama's while 40% on mobile apps and Fuliza. Majority of the instances the 

mobile lending apps do not ask for collateral hence encourages small business owners to apply 

loan from them. 

On the individual factors the study established that such factors including social class, 

convenience, security, service quality and price of product influences consumer choices. The 

study also established that there are personal characteristics such as one ' s level of education as 

attested by 87% of the respondents, clearly influences their choices on microcredit and 

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borrowing rates. Regarding the reference group factor 95% of the respondent indicated that they 

joined or participated in microcredit organization or Sacco's because someone refened them to it. 

The respondent agreed that product and brand familiarity also affected their choices. Companies 

like Safaricom which contains Fuliza services is largely known across Kenya, hence the 

probability of one to apply loan on fuliza is very high compared to other institutions. 

5.3 Discussions. 

The research findings of the factors affecting the choice of microcredit in micro and small 

enterprises that education been one of the issues, the findings on borrowing indicating that 95% 

of the respondents said that they bonow loan and 5% said that they do not bonow loan. (Gebru, 

May 2009) asserts that business owners that are established as either sole proprietorships or 

pminerships prefer to exhaust internal sources of finance before going for debt or equity because 

of the collateral incentives of financing institutions that have bearings on personal assets of the. 

This agrees with the results obtained where the ownership type did not have a relationship with 

access to a loan. Another important factor to be considered is that most of the businesses were 

sole proprietorships. Gebru (2009) also opined those small businesses will prefer to use internal 

sources of funds instead of applying for loans. This indicates that most small businesses take out 

loans. 

Among those who took out a loan, 40% said they took the loans from mobile lending and 30% 

from their individual Chama's and Saccos 10% applied their loans from the bank, majority this 

respondent belonged to the medium enterprises 14% applied their loan in different micro finance 

institutions. Majority of my respondents were women. This result mimics the earlier studies 

which indicated that the Kenyan govenm1ent admitted that women entrepreneurs have not been 

on an equal footing when it comes to their access to opportunities and assets (Mwobobia, March 

2012) 

The study also found there is a relationship between the age of the business and access to loans. 

The finding agree with ( (ElizabethAkoth, 2012) who found that the financing constraints are 

particularly severe in stmiup enterprises and relatively young firms (three years old or less) . This 

can be explained by the fact that most of the businesses in this study had been in existence for 

one to tlu·ee years and were largely sole proprietorships, so they may prefer equity financing or 

other internal sources of funding. The number of employees had no bearing on whether the 

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company could get a loan. (Balcioglu, May 201 0) who also found that the ownership type played 

a big role in the financing • used 

5.3.1 Effect of individual factors affecting respondent's choice in microfinance. 

Having assets does not always imply that they are available for use as collateral. Personal assets 

of the proprietor or partner, for example, are not disclosed on the business's balance sheet and 

hence cannot be used as collateral. This may be a good thing. reason why the findings do not 

show a link between holding collateral and having access to loans. From the findings above, 95% 

of the respondents don't need collateral as they use mobile lending while 5% need collateral. 

(Balcioglu, May 201 O)who also found that greater sales and profits were associated with greater 

access to credit? This is consistent with results obtained by This is consistent with results 

obtained by This is consistent with results obtained by (Balcioglu, May 201 0). 

It was possible that the level of education was a major factor in coming to a lending decision, 

either because bankers valued a higher education or because a higher education means that 

entrepreneurs were more articulate and more likely therefore to persuade the banks that they 

have a viable proposition. This agrees with studies by (Bosworth 2009) and (Solomon, may 

2008) who all found a strong correlation between education and forward thinking in business and 

with access to loans (Balcioglu, May 201 0) also indicated that the entrepreneurs capacity 

(educational) development level has significant effect on the financing of Small and Medium 

Enterprises in Kwara State ofNigeria. 

The experience of entrepreneurs has a considerable impact on their decision to use a 

microfinance organization. This could be because of the entrepreneurs' previous experience, 

which taught them how to avoid making the same mistakes in the application process. Because 

of the length of time, they've been in business and their education level, the owners would be 

able to understand intricate loan application procedures, provide favorable financial facts, and 

develop closer ties with their lenders. 

The respondents preferred organization with has better service quality. How they are treated 

really affect their choices. They want t to trust an organization with their personal details and to 

feel like they are heard. 

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5.3.2 Effect of reference groups factors affecting choice in microfinance 

In consumer purchasing, reference groups are considered a social influence. They are frequently 

grouped together for customers to make purchasing selections. As a result, if a reference group 

recommends a product, whether through personal experience or words about the product, 

individuals who rely on the group are more likely to buy it. If a reference group, on the other 

hand, disapproves of a product, those who affiliate with that group are unlikely to buy it. A 

variety of people or groups can affect our purchasing decisions . 95% of the respondents joins an 

organization or Sacco because they were refened. Opinion leaders are usually people who are 

more knowledgeable about a certain product or service than the average consumer. As such, 

opinion leaders can shape how a product is viewed (LumenWaymaker, n.d.). 

5.3.3 Effect of product and brand familiarity factor affecting choice of microcredit. 

Reputations, as indicators of quality ofthe set of managerial actions, are a valuable resource hard 

to imitate, which plays a crucial role in times of crisis (EbenezerAppiah, 20 19) . This paper 

climaxes the fact that a well-integrated application of technology and staff aids to size customer 

loyalties by creating deeper and fuller customer relations. Based on the theory, reputation was 

considered as a factor that influences SME's choice of Micro-finance institutions in the 

municipality. Many respondents use Fuliza because it is wildly known. 

l , Khawaja and Manarvi (2009) found out that financial institutions such as microfinance which 

uses teclmology in its operations reduce the burden on manual input on registers and ledgers with 

customers that were served tlu·ough cheques and pay orders, with the introduction of Automatic 

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Teller Machines (ATMs) for interacting with consumers and provide better services. Customers 

will choose to participate in an organization that has better teclmology. 

Apparently, the respondent care less about the interest rates when they receive the loan faster. 

Like Fuliza which has a higher interest rate, but the SMEs still use it. 

5.4 Conclusions. 

The study concluded that individual, group reference and product and brand familiarity affect the 

choices of consumers regarding a specific product. The study concludes that there is a positive 

relationship between individual, group reference and product and brand familiarity. The study 

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first objective examined the effect of individual factor on consumer choices. The study indicated 

that there is a positive correlation between individual factors and micro and small entrepreneur's 

choices of microfinancing. The study concluded that availability of collateral, service quality, 

convenience and security directly affect consumers buying behavior. 

The second objective determined there is a positive and significant influence of reference groups 

on choice of microfinancing in micro and small entrepreneurs. The third study objective 

indicated there is a positive and insignificant influence of product and brand familiarity on 

consumer choices. It concluded that an organizations reputation and information technology play 

a major role in choice while interest rated has a minimal impact. 

5.5 Recommendations 

Regulatory and other statutory organizations should keep an eye on interest rates on loans and 

advances to ensure that they are affordable for enterprises. Where policies are lacking, they 

should be implemented to promote the expansion of both microfinance and small companies. 

Additional talent building, particularly through training and focused support programs with 

business owners on how to approach microfinance institutions, inf01mational requirements, and 

working closely with MFis to provide additional advice and support to the businesses, should be 

considered by policymakers. Companies should make their customers a priority when designing 

a product to ensure all or most of the customers ' needs are met. 

In addition to encouraging active engagement by SMEs, it IS necessary to support the 

development of SME associations/organizations. Govenunents and donor agencies should 

finance these organizations and their operations (such as consulting services) so that SMEs can 

pay cheaper rates. This will help with networking and will be crucial when applying for loans. 

The study also suggests that the organization focus its efforts on electronic distribution as a 

distribution channel. This can be accomplished tlu·ough raising consumer awareness and 

developing new and creative products and processes to expand the customer base. 

5.6 Suggestions for Further Research. 

This study notes that the group reference factors are not well researched on, hence it ca be 

sometimes difficult to compare research findings with other authors . The study also indicates that 

micro and small entrepreneurs care less about the interest rates. Further research should be 

conducted to find out what and why they do so. 

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Appendices 

Appendix 1: Questionnaire 

SECTION A 

1. Age bracket. 

a Between 18-28 yrs. 

b 29-38 yrs. 

c 39-48 yrs . 

[I d 49-58 yrs. 

L 2. Highest level of education attained 

L (a) Primary 

(b) Secondary 

l (c) Certificate 

t. 
(d) Diploma 

(e) Bachelor's degree 

L ,., 
Marital status .). 

I . (a) Married 

l (b) Singled 

(c) Divorced 

L (d) Widow or widower 

L 4. Number of employees . 

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5. How long has the business existed. 

Number of years 

Less than 5 yrs. 

Between 6-10 yrs. 

Between 11- 15 yrs. 

Over 16 yrs. 

6. Ownership style 

SECTION B 

7. Have you accessed any loan for the last 12 months? 

(a) Yes 

(b) No 

8. Where did you apply the loan from? 

(a) Bank 

(b) Micro finance institution 

c) Sacco 

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(d) Other (specify) 

9. How long does it take for your loan to be processed? 

(a) Immediately 

(b) Less than a day 

(c) 1-2 weeks. 

(d) More than 2 weeks (specify the length) 

1 0. Was there any collateral needed? 

(a) Yes 

(b) No 

11. Did you get the full amount? 

(a) Yes 

(b) No 

SECTION C. 

12. Service quality. 

5= strongly agree 4= Agree 3= Disagree 2= Strongly Disagree 1 =Neither agree nor disagree 

Can the respondents rely on the institutions 1 2 
,., 

4 5 .) 

for loans if they have a problem? 

Does the institutions or app respond quickly 1 2 
,., 

4 5 .) 

to their needs? 

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Does the institution have empathy or relate 1 2 
..., 

4 5 .) 

to their customers? 

1 2 
..., 

4 5 Does the organization show willingness to 
.) 

tolerate the existence of opinion of their 
customers? 

13. Convenience of the organization. 

5= strongly agree 4= Agree 3= Disagree 2= Strongly Disagree 1 =Neither agree nor disagree 

Does the location of the place affect your 1 2 
..., 

4 5 .) 

choice of organization? 

Do you prefer the loan that is available on the 1 2 
..., 

4 5 .) 

phone? 

Do you prefer an organization that has a 1 2 3 4 5 

lmown physical location? 

14. Security. 

5= strongly agree 4= Agree 3= Disagree 2= Strongly Disagree 1 =Neither agree nor disagree 

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Do you trust the organization? 1 2 ') 4 5 .) 

Do you believe that your personal details are 1 2 ') 4 5 .) 

secured in the organization? 

Does the organization uphold confidentiality 1 2 ') 4 5 .) 

in their day-to-day activities? 

Does the organization protract a sense of 1 2 ') 4 5 .) 

integrity in their work? 

15. How reference group affect the choice ofmicrocredit institutions. 

5= strongly agree 4= Agree 3= Disagree 2= Strongly Disagree 1 =Neither agree nor disagree 

I applied loan in an organization my 1 2 ') 4 5 .) 

friends refeiTed me to. 

I joined a chama or Sacco because it 1 2 ') 4 5 .) 

was recommended by someone I know. 

I did not like this organization because 1 2 ') 4 5 .) 

of its reputation. 

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16. How information Technology affect the choice of micro credit. 

5= strongly agree 4= Agree 3= Disagree 2= Strongly Disagree I= Neither agree nor disagree 

The app has few updates 1 2 
,.., 

4 5 .) 

The organization has latest IT services 1 2 
,.., 

4 5 .) 

The app has or organization grve out useful 1' 2 
,.., 

4 5 .) 

notifications 

The IT technology has endless forms to fill 1 2 
,.., 

4 5 .) 

The app or teclmology takes long time to load 1 2 
,.., 

4 5 .) 

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[:) 

. r 0 ~ nfluence of distributi ' ~ QUE':>TIONNAIKI: FOP I G stratnmore universtty 

i elearning.strathmore.edu/mod/assign/ view.php ?id = 199183&action=view 

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