Effect of Informal Financing Structure on Financial Performance of Women Owned Enterprises in Kenya: A Case Study of Gikomba Market

Abstract

The main objective of this study was to investigate the effect of informal financing structure on financial performance of women owned enterprises in Kenya. The study covered rotating savings and credit associations (ROSCAs), trade credit financing, shylock financing and borrowing from friends and family as the specific objectives, guided by the Adverse Selection Theory, Financial Liberalization Theory, Credit Rationing Theory and the Altruistic Financing Theory. The study used a descriptive study and targeted1000 registered women owned enterprises; sample size of 90 female entrepreneurs was used to provide primary data. A regression analysis was performed to show the significance of the relationship between study variables from the findings. This study found out that ROSCAs and trade credits have a positive effect on financial performance and recommends entrepreneurs to utilize these informal methods if they opt for the informal financing. Shylock financing was found unfavorable in financing business enterprise due to huge interest rates, provision of collateral and the non-impact on financial performance. Borrowing from friends and family though with zero interest rates, results to smaller amounts that are inadequate to finance business enterprises. This study recommends that this option can only be exercised if ROSCAs and trade credit fail.