An Assessment of Financial Literacy on Loan Repayment by Small and Medium Entreprnuers in Ngara, Nairobi County

Abstract

The SMEs form a great percentage of all enterprises in the world. The global economy is heavily dependent on the success of Small Medium Entrepreneurship (SME) which creates employment, poverty alleviation and balanced developments which brings about economic growth in rural and urban setups. The government of Kenya is determined to raise the middle class status of the nation by the year 2030 through the participation of SMEs. This initiative has received the support of the banking sector, particularly Equity Bank. These enterprises allow the marginalized groups to diversify their levels of income. Equity bank has established financial literacy programs to provide the SMEs with financial skills necessary to create efficiency and effectiveness in entrepreneurship. Despite all these, the SMEs in Kenya face challenges that hinder them from attaining economies of scale. They lack training and management capacity to manage the business resources effectively. Financial literacy therefore is regarded as one of the strategies used by bankers to provide knowledge and skills needed to change attitude and attract more potential users of agent banking. The purpose of this paper was to investigate the influence of financial literacy on SMEs loan repayment. The specific objectives of this study is to establish the impact of book keeping skills, credit management and budgeting skills influence loan repayment by  the beneficiaries. The study was conducted among the beneficiaries of Equity Group Foundation Training Program (EGFTP) on SMEs in Ngara, Nairobi County. A sample of 30 SMEs was selected for the study using stratified random sampling technique. The study used a descriptive survey research to investigate the factors influencing loan repayment among the beneficiaries. The researcher used self administered structured questionnaires to collect primary data from a sample of selected beneficiaries. The collected data was coded and entered in computer software for analysis. Both descriptive and inferential statistics were used for data analysis. The study concludes that book keeping, credit management and budgeting skills significantly influenced the ability of SMEs to repay loans. The study recommends that the SMEs should enroll in financial related programs to enhance their capacities. The government and other industry players should emphasize on the importance of financial skills in to day running of their business. There is need also to initiate more financial literacy programs to reach to many SMEs for proper credit management skills hence improvement of loans repayment.

Key words: Financial Literacy, Small Medium Entrepreneurs, Equity Group Foundation