Financial Inclusion and Financial Performance of Micro, Small and Medium Enterprises in Dagoretti North Sub County, Nairobi City County, Kenya

Abstract

The Micro, Small and Medium Enterprises play a significant role in contributing towards economic development of many countries of the world. It is the leading sector in creation of job opportunities for millions of young people among the developing countries across the globe, and in Kenya in particular. Despite this significant contribution of this sector towards economic development, the sector faces a myriad of challenges when it comes to access to credit, financial transactions and financial literacy influencing their performance (World Bank, 2025). The purpose of this study was to examine the influence of financial inclusion on financial performance of Micro, Small and Medium Enterprises (MSMEs) in Dagoretti North Sub County, Nairobi County, Kenya. The specific objectives included; assessing the influence of access to credit on financial performance of MSMEs in Dagoretti North Sub County, establishing the influence of transaction convenience on financial performance of MSMEs in Dagoretti North Sub County, and analyzing the influence of financial literacy on financial performance of MSMEs in Dagoretti North Sub County. The research was anchored on the Theory of Financial Inclusion, advanced by Morduch (1999), Theory of Financial Intermediation advance by Gurley and Shaw (1960), Technology Acceptance Model (TAM) developed by Davis (1989) as an adaptation of the Theory of Reasoned Action (TRA) and The Human Capital Theory advanced by Schultz (1961) and later popularized by Becker (1964). Quantitative research methods were employed while correlational research design was used. The target population was 5,112 licensed and registered MSMEs in Dagoretti North Sub County, Nairobi City County. Based on Yamane’s formula, the sample size of 371 MSME Owners/managers was selected. Stratified random sampling and purposive techniques were used to select the sample size. The data was collected using questionnaires with close-ended questions. A pilot study was conducted to establish the validity and reliability of the questionnaire. The quantitative data was analyzed using SPSS. Pearson correlation test was used to determine the existence of relationships while regression analysis was used to determine the extent to which the study variables relate with each other. Results revealed a positive and significant relationship between financial performance and credit access (r = .35, p < .01). This means that when credit access is higher, financial performance also tends to be better. The results also showed that there was a positive and significant relationship between financial performance and transaction convenience (r = .48, p < 0.01). This means that when transactions were easier and more convenient, businesses tended to perform better financially. In addition, results revealed that there was a positive and significant relationship between financial performance and financial literacy (r = .55, p < .01). However, government policy did not significantly influence the overall impact of credit access, transaction convenience and financial literacy on financial performance of MSMEs. Overall, the study showed that MSMEs in Dagoretti North benefit a lot from financial inclusion. The study underscored the importance of strengthening initiatives that support financial literacy, access to credit, and transaction convenience as this has been shown to make MSME businesses to thrive.