factors affecting growth of small businesses in kenya a case of kariobangi area in nairobi by ...

102 Pages·2016·1.17 MB·English

by  Samson Njuguna

FACTORS AFFECTING GROWTH OF SMALL BUSINESSES IN KENYA

A CASE OF KARIOBANGI AREA IN NAIROBI

BY
NJUGUNA SAMSON

UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA

SUMMER 2016
FACTORS AFFECTING GROWTH OF SMALL BUSINESSES IN KENYA

A CASE OF KARIOBANGI AREA IN NAIROBI

BY
NJUGUNA SAMSON

A Research Project Report Submitted to the Chandaria School of Business in Partial
Fulfillment of the Requirement for the Degree of Masters in Business Administration
(MBA)

UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA

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SUMMER 2016
STUDENT DECLALATION

I the undersigned, declare that this is my original work and has not been submitted to any
institution other than United States International University in Nairobi for Academic credit.

Signed………………………………………………..Date……………………………………
.

This project has been presented for examination with my approval as the appointed
supervisor.

Signed………………………………………………Date………………………………..

Dr.Joseph Ngugi Kamau

Signed………………………………………………Date………………………………..

Dean, Chandaria School of Business

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COPY RIGHT
No part or section of this report project may be reproduced in any form and/or by any means
or stored in any database or retrieval system without permission of the author.
Copyright ©2016 Chege Njuguna
All rights reserved

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ABSTRACT
The drive of this study was to exclusively determine the dynamics that affect the growth of
small and medium enterprises in Kenya. Additionally, the study would determine the extent to
which capital invested in business, insufficient managing skills in business and unavailability
of market affects growth of small enterprises. The study employed descriptive research
approach to reach the target population of about three hundred and eight small businesses in
Kariobangi area. The population of the study comprised employees and owners of the small
businesses in the area. The study used stratified random sampling where a sample of 241
businesses was drawn from the population which was divided into strata’s and proportionate
samples taken from each stratum.
Survey questionnaire was used to collect the data, both qualitative as well as quantitative. Data
analysis was then done using excel and statistical package for social science computer
programs (SPSS). Data was tabulated using frequency and percentages for all the project
background information variables. The study also incorporated bar charts besides pie charts to
present an analysis of the outcomes summary. A reliability test was performed in order to
determine how reliable the data colleting instrument was. A normality test then followed in
order to establish whether the data collected was normally distributed. Reports of the
inferential statistics showing the regression coefficient analysis and the chi-square test of
associations was also carried out.
The findings on the capital invested in the business revealed that capital has a contribution to
the growth of the firm. It was discovered that financial limitation was caused by small
businesses inability to source funds from lending institutions like banks because of mainly
collateral deficiency, lack of guarantors and massive documents requirements coupled with
complicated and lengthy application procedures. The findings on the business managing skills
revealed that most business operators have at least secondary school education. Majority have
not been trained in business related courses like Marketing, Economics, Commerce, Accounts
Finance and Entrepreneurship. Most business operators indicated that training in a business
related course is costly. The findings on the market availability revealed that most small
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business operators are faced with extensive competition which results in reduced market share.
Other contributors of lack of markets that came out from the study were like failure by the
small businesses to do research, failure to budget for products promotion and infrastructure
related issues.
The study concluded that deficient capital invested in the small businesses, lack of managing
skills and lack of markets affects the growth of small businesses. The main challenge
surrounding capital was inability to borrow funds. The key problem revolving around
managing skills was inability to train while the chief challenge around marketing for small
businesses was inability to promote their products and services.
The study therefore recommends that banks should review the interest rates on loans because
they are very high in Kenya. Government should introduce policies aimed at improving access
to finances that enable small businesses have it easier to credit facilities. The state should
ensure a reduction in the cost of training in business courses by providing subsidies. The
government should protect the small businesses against heightened competition especially
from cheap imports. The state should also improve the infrastructure. Small firms being a key
component in building a competitive private sector and contributing significantly to
employment creation that yields tangible economic development, the study recommends
further study on the small business firms to iron out other causes of sluggish growth and
failures in the businesses.

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ACKNOWLEDGEMENTS
Primarily, I would like to thank God Almighty who gave me the strength and ability to be able
to work on this study.
My gratitude goes to my supervisor Dr. Ngugi Kamau, who provided professional guidance
and assistance in the completion of the research project. His numerous valuable comments and
appropriate feedback was highly significant to the content and presentation of this project.
Additionally, I acknowledge Professor F. Wambalaba who was my instructor in Business
Research Methods Course, for the valuable support and assiduous assistance in developing the
proposal for this project.
Special thanks goes to respondents who took their time to fill the questionnaires which lead to
the successful collection of data.

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TABLE OF CONTENTS
COPY RIGHT ............................................................................................................................................. iii
ABSTRACT ................................................................................................................................................. iv
ACKNOWLEDGEMENTS ........................................................................................................................ vi
TABLE OF CONTENTS ........................................................................................................................... vii
LIST OF TABLES ........................................................................................................................................ ix
LIST OF FIGURES ...................................................................................................................................... xi
List of Abbreviations ................................................................................................................................... xii
1.CHAPTER ONE ..................................................................................................................................... 13
1.0 Introduction .......................................................................................................................................... 13
1.1Background of the Study ......................................................................................................................... 13
1.2 Problem Statement ................................................................................................................................. 19
1.3 General Objective .................................................................................................................................. 20
1.4 Specific Objectives ................................................................................................................................ 20
1.5 Justification of the Study ........................................................................................................................ 21
1.6 Scope of the Study ................................................................................................................................. 21
1.7 Definition of Terms ................................................................................................................................ 22
1.8 Chapter Summary .................................................................................................................................. 22
2.CHAPTER TWO .................................................................................................................................... 23
2.0 LITERATURE REVIEW .................................................................................................................... 23
2.1 Introduction ............................................................................................................................................ 23
2.2 Extent to which Capital has Influenced Growth of Small Businesses in Kenya .................................... 23
2.3 The Extent to which Skills has Influenced the Growth of Small Businesses in Kenya. ........................ 27
2.4 The Extent to which market has Influenced Growth of Small Businesses in Kenya ............................. 32
2.5 Chapter Summary .................................................................................................................................. 38
3.CHAPTER THREE .................................................................................................................................. 39
3.0 RESEARCH METHODOLOGY ....................................................................................................... 39
3.1 Introduction .......................................................................................................................................... 39
3.2 Research Design ..................................................................................................................................... 39
3.3 Population and Sampling Design ........................................................................................................... 40
3.4 Data Collection Methods ....................................................................................................................... 43
3.5 Research Procedure ................................................................................................................................ 45
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3.6 Data Analysis Methods .......................................................................................................................... 45
3.7 Chapter Summary .................................................................................................................................. 46
4. CHAPTER FOUR.................................................................................................................................. 47
4.1 Introduction .......................................................................................................................................... 47
4.2 General Information ............................................................................................................................... 47
4.3 Capital Invested...................................................................................................................................... 53
4.4 Managing Skills ..................................................................................................................................... 58
4.5 Market Availability ................................................................................................................................ 66
4.6 Reliability Test ....................................................................................................................................... 72
4.7 Test for Normality .................................................................................................................................. 72
4.8 Chi-square Tests ..................................................................................................................................... 73
4.9 Chapter Summary .................................................................................................................................. 76
5.CHAPTER FIVE ...................................................................................................................................... 77
5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMMENDATIONS ............................................. 77
5.1 Introduction .......................................................................................................................................... 77
5.2 Summary ................................................................................................................................................ 77
5.3 Discussions ............................................................................................................................................ 79
5.4 Conclusions ............................................................................................................................................ 88
5.5 Recommendations .................................................................................................................................. 89
REFERENCES ........................................................................................................................................... 91
APPENDIX 1: QUESTIONNAIRE .......................................................................................................... 97

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LIST OF TABLES
Table 3.1: Population Distribution .......................................................................................... 41
Table 3.2: Sample Size .......................................................................................................... 43
Table 4.1: Business Ownership............................................................................................... 49
Table 4.2: Business Registration............................................................................................. 50
Table 4.3: Business Sector ...................................................................................................... 50
Table 4.4: Workers at Present ................................................................................................ 52
Table 4.5: Branches at the Start .............................................................................................. 53
Table 4.6: Branches at Present ............................................................................................... 53
Table 4.7: Source of Capital ................................................................................................... 54
Table 4.8: Sufficiency of Money Invested .............................................................................. 55
Table 4.9: Bank Loan Applications ........................................................................................ 55
Table 4.10: Loan Guarantors .................................................................................................. 56
Table 4.11: Financial Documents and Records ...................................................................... 57
Table 4.12: Financial Support ................................................................................................. 58
Table 4.13: Level of Education ............................................................................................... 58
Table 4.14: Business Related Course...................................................................................... 59
Table 4.15: Training and Education ........................................................................................ 60
Table 4.16: Education and Feasibility Study .......................................................................... 61
Table 4.17: Education and Training Necessity ....................................................................... 62
Table 4.18: Planning ............................................................................................................... 62
Table 4.19: Training Helps in Decision Making .................................................................... 63
Table 4.20: Business Challenges ............................................................................................ 64
Table 4.21: Risk Assessment .................................................................................................. 64
Table 4.22: Cost of Training ................................................................................................... 65
Table 4.23: Efficient and Effective Operation ........................................................................ 65
Table 4.24: Number of Customers at the Start ....................................................................... 66
Table 4.25: Number of Customers at Present ......................................................................... 66
Table 4.26: Business Product .................................................................................................. 67
Table 4.27: Low Product Demand .......................................................................................... 68
Table 4.28: Imported Goods .................................................................................................. 68
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