Micro Enterprise Credit and its Effects in Kenya:

'
An Exploratory Study

Jennefer Sebstad and Martin Walsh

EXECUTIVE SUMMARY

This report presents the results of a study on the impacts of

micro-enterprise credit in Kenya. It is based primarily upon
'interviews with 5O micro-enterprise cred'it c'lients drawn f rom two
different cred'it programs, one urban and the other rural .

The purpose of the study was twofold. Its first objective was
to assess the impacts of micro-enterprise credit upon clients'
enterprjses, their households, and the wider enterprise environment
in which they operate. A second objective was to use the results
to develop a working methodology for use in future impact studies
and program eva'luat'ions.

The main text qf the report describes and analyzes the

pri nci pal f i n d i n g s of the study. It shows that overal l
improvements in the f inancial performance of the assisted
enterprises during the loan period were impressive. Average
m o n t h l y s a l e s i n c r e a s e d b y 7 5 % , d i r e c t v a l u e a d d e d r o s e b y 1 2 Q %a n d
cash incomes increased by 110%. However, there were significant
differences between 'indiv'idual enterprises; not al I of them
performed as wel 1 as the overa'l I f igures i mply. 30% of the
enterprise experienced a reduction in sa'les, 26% a drop 'in direct
value added, and 56%a fa]1 in cash'income. There was also lim'ited
evidence of underl yi ng structural improvements wi th'in the
enterprises, Average net profit margins remained constant at .22
although a third of clients still succeeded in increasing their
margins. This suggests f imited improvement in business practices
and prof itabi I ity 'in the remaining two thi rds of the enterprises.

As the above data suggest, the benefits of loan investment

were not spread evenly among the clients in the study sample
although some consistent patterns emerged, One striking finding,
'ly
for example, was that the loans typica'l had a much greater impact
in the urban sample compared t,o the rural. Production enterprises
generated higher levels of sales, direct value added, and cash
incomes, but trade enterprises increased these figures at the
highest rate during the loan period. There were no simple
re'lations between loan impacts and gender of the cl ients in the
overa'l I sample. However, signif icant gender differences emerged in
considering the urban and rural samples separately. The financial
status of urban women's enterprises 'improved much more than urban
men's. Exactiy the reverse happened in the rural sample, where
women's enterprises performed less well than men's,

Data on employment show that the total number of employees

(exclud'ing enterprise owners) increased by 37% and the average
number of employees per enterprise rose from 1.18 to 1.62. The
a v e r a g e ' i n v e s t m e n t ' l epsesr n e w j o b c r e a t e d w o r k e d o u t t o b e K s h .
41 ,336/US$ 1,797 , than one ei shth the estimated i nvestment
needed to generate a modern wage job in Kenya. However, whi'le
employment increased quantitat'ively, the structure of the labor
force did not change quite so positively. The proportion of men to
w o m e ne m p l o y e e s ( e O x : 2 O % ) h a r d l y c h a n g e d . T h e p r o p o r t i o n o f u n p a i d
to paid workers (74%226%) and ful l-time to part-t'ime employees
( 6 3 % : 3 7 % )a l s o s t a y e d m u c h t h e s a m e . S i m i l a r l y , the distribution
of workers by status wage employees (33%), piece rate workers
(19%), casual laborers (22%), and family workers (2ax) -- did not
change. Of the few new jobs generated for women, most were jn
unpaid work.

At the household level, increased cash incomes from the

assisted enterprises translated into an est'imated 31% increase in
household incomes. Overall, the assisted enterprises provided 42%
of total household incomes. Over half of the women in the samples
were the sole or primary earners for their famif ies, ind'icating the
importance of micro-enterprise income for them. W o m e ng e n e r a j l y
'increase thei r
reported that the assi sted enterpri ses di d not
workloads, but they gid complain about their husbands' wish to
assert econom'ic control over the 'income f rom thei r enterpri se
activit'ies.
'l
Beyond the household the loans had a imited impact on the
s t r u c t u r e o f b a c k w a r de n t e r p r i s e l i n k a g e s , a i t h o u g h t h e c l i e n t s d i d
shift s'lightl y f rom retai I to wholesale suppl iers. There i{as,
however, a positive impact upon the structure of forward linkages.
While most of the clrents depended large'ly on provid'ing goods and
services to ind'ividual consumers, there was a significant increase
( 5 8 %) i n t h e n u m b e r s e l I ' i n g t o I a r g e r customers. These new
customers were primarily other micro-enterprises in the urban area
and publ ic institut'ions (especial'ly schools) in the rural area. At
the same time, €rh impressive proportion of the cl ients provided
goods or servrces that were new or unique to the community (46%),
saved time or labor (4O%), or were lower in price than those
provjded by their competitors (30%).
'loans
The di d not have an i mpact on the regu I atory
env'ironment, but regulatory constraints did impinge negatively on
clients'business operations and thus the effect'iveness of their
loans. The most successfu'l cl jents in the study were much more
l ike]y to be working outside the regulatory envi ronment than those
who were less successful.

An appendix to the report presents methodologicai

recommendations for future studres. The proposed approach is
essent'ial ly a pragmatic one, and a draft questionnai re is presented
together with notes on its use and application 'in the f ield. Th'is
survey i n s t r u m e n t c a n b e a d a p t e d t o a v a r i e t y o f c o n t e x t s a n d u ses,
'including monitoring and evaluation of credit impacts w'itfrin micro-
enterprise assistance programs. It 'is also des'igned to be appl ied
 'larger
to a sample and to generate a much more thorough analysis
than t h e p r e s ent study. The proposed methodology will hopefully
form a b a s i s f o r t e s t i n g a n d e x t e n d i n g t h e s t u d y r e s u l t s to other
p I a c e s ' in K e n y a a n d A f r i c a .