Sharia-Compliant Sacco Services and Financial Performance of Small and Medium-Sized Enterprises in Nairobi City County, Kenya

Abstract

Saving and Credit Cooperative societies (SACCOs) are basis of monetary provisions helping entrepreneurs and other upcoming industries connect to banking facilities and other services. They provide monetary provisions to low-income earners who are self-employed. On the other hand, sharia-compliant SACCOs have obtained considerable importance in the modern globe on the foundation of stipulation of loans without interest together with the sharing of losses and profits via the doctrine of profit-sharing (Mudharaba) and joint-venture (Musyaraka). Although numerous researches have been done on areas of Islamic banking, few researches have explored the role of sharia-compliant SACCOs on SMEs in Kenya. Therefore, the motive of this study was to explore the effect of sharia-compliant SACCO services and monetary achievements of SMEs within Nairobi City County, Kenya. The survey was to be informed by four objectives namely; to determine the effect of credit services, training services, banking services and saving services by sharia-compliant SACCOs on financial performance of SMEs in Nairobi City County, Kenya, The study was to be based on three theories namely; financial intermediation theory, credit access theory and the saving culture theory. The project has utilized a descriptive research plan in establishing the effect of sharia-compliant SACCO services on financial performance of SMEs in Nairobi city county, Kenya. The target population was 300 SMEs that operate within Nairobi City County who are clienteles of sharia-compliant SACCOs. Utilizing cluster sampling, the survey has adopted a total of 90 participants from the SME proprietors. The researcher collected primary data utilizing closed questionnaires as the research instrument. The data was obtained by using drop and pick later method and followed it via telephone calls. The collected data was summarized, coded, tabulated and analyzed using SPSS. The study derived the mean, frequencies and percentages from the data analysis for each variable. Findings of the study were obtained by use of charts, histograms and bar graphs where appropriate. The results of the study are believed to add up to existing body of knowledge in the field of SMEs business development as well as in Islamic banking in Kenya. Regression analysis was used to establish the relationship between SACCO services and financial performance of SMEs in Nairobi City County. The study concluded that the services provided by sharia-compliant SACCOs have significantly enhanced the financial performance of SMEs in Nairobi City County. The study recommended sharia-complaint SACCOs and other financial institutions to do frequent trainings for SME owners so as to solidify their capacity, skills and knowledge.