The Impact of Attitudes towards Saving, Borrowing and Investment on the Capital Accumulation Process in Kenya: An Application of the Theory of Planned Behavior

Abstract

The role of attitudes of the entrepreneurs toward saving, investment and borrowing to invest is an important factor in economic development. This study examined how attitude influences the amount and form of funds saved, borrowed and invested by Micro and Small Entreprises (MSEs) in Kenya. It also examined the instruments used for saving, the sources of finance and how these combine to influence the capital accumulation process and poverty alleviation efforts. A survey of MSEs in Ongata Rongai Township showed that attitudes of MSEs influenced their saving, investing and borrowing behavior. This relationship is positive and significant. The MSEs prefer saving with banks but not Microfinance Institutions (MFIs) and other traditional instruments. The MSEs have a positive attitude toward saving, borrowing and investment. However, they are noncommittal to borrowing from the formal financial system. Those who borrow prefer banks to MFIs. This is attributed to the high interest rates, long procedures for obtaining loans, and the rent seeking behaviour of some officers of the MFIs. The MSEs rely mainly on their savings as a source of finance for investment. Reliance on internal finance means that MSEs must first accumulate savings before investing. Since the amounts saved by most MSEs are small and credit is limited, the amount invested and the returns on investment are also small. Thus the capital accumulation process is long and arduous. This could partly explain why we seem to be loosing the war against poverty in Kenya. Therefore any form of intervention to alleviate poverty through microfinance must seriously consider the attitudes and intentions of those being targeted.

Keywords: Attitudes, Micro and Small Entreprises, Intentions, Saving, Investment, Borrowing, Capital Accumulation, Theory of Reasoned Action, Theory of Planned Behavior, Subjective Norms, Beliefs, Significant Others, Intention.