Business-financing options' effects on micro-enterprise performance in the tropics

Abstract

Micro-enterprises play an important role in one of the world’s most socioeconomically challenged regions: the tropics. Although various business-financing options for micro-enterprises exist, little is known about whether these options affect such enterprises’ performance. This chapter aims to examine various business-financing options’ effects on micro-enterprises’ performance in Kisumu County, Kenya, i.e., this study’s tropical context. Based on a survey of 326 micro-enterprises, the data analyses suggest that limited evidence exists that business-financing options affect micro-enterprises’ performance. With some reservations, it should be noted that a positive relationship exists between personal financing and a firm’s sales growth. The same goes for personal financing of micro-enterprises and the increased amount that the micro-entrepreneur’s household spends on housing. Only with some reservations can it be concluded that a positive relationship exists between the two, respectively. In both situations, personal financing is compared with internal and external financing, respectively. Explanations for this limited evidence concerning various financing options’ effects on micro-enterprise performance are discussed, and future research directions are proposed.