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Essay: Insurance market for SMEs in Kenya

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  • Published: 1 April 2019*
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  • Words: 1,451 (approx)
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1.1 Background of the study.

Small and Micro Enterprises(SMEs) contribute to achievement of macroeconomic goals and their growth is essential for a competitive economy and efficient market. SMEs are widely known as amajor source of unemployment and income in developing countries (Mano et al.,2011). The youth are most likely to benefit if SMEs grow in size because they will be contributing to economic growth and levels of poverty will go down. In addition to the employment creation and income generation there are important roles that SMEs provide like;production of goods and service developmrnt of skills. A study by Cooper(2012) on the impact of competition , financial management on the growth of SMEs in Kenya found a strong bond between the two.

According to Tenger(2013), it is the role of the entrepreneur to have the idea of how to manage the business by analyzing the available resources necessary to start up the business. Studies by Nitcher and Goldmark (2009);Stokes et al.(2010);Van Praag(2013); and Yu and Bell (2007) says that the behavior of the entrepreneur and his traits are key in setting up a business. Others  argue that these bundles of traits are different from one person to another and also region (Kloosterman and Rath, (2001).

Globally , countries like Asia have been continuously growing during the decades , and this growth has reduced poverty and increased the number of middle-income countries in the region. SMEs are the stronghold of the economies of Asia accounting for 98% of all enterprises and 66% of national labour force an average during 2007-2012. SMEs contributed a percentage of 38 suggesting their contribution to the region’s economies can be expanded.

In Ghana, the SMEs sector has been in existence for a period of time and there are lots of significances and opportunities  for this sector in the area of agriculture,tourism,services etc. Over the past years the Government of Ghana have promised to improve the private sector and help it develop more. Most Ghananians have endulged themselves in small business due to the fact that the make good profits when managed well. This has made entrepreneurship a fast and better option in Ghana.Ths has reduced poverty levels because the youth who comprise a high percentage of the unemployed people in the country are driven into establishing their own businesses.  According of Acolaste,(2012) SMEs comprises greater than ninety percent of most business operations in Ghana.

In United States, small businesses enterprises create a large percentage of employment opportunities estimated between 60-80 percentage (Markova and Petkovska ‘ Mircevska,2009). This is due to the responsibility that the enterprenuer owes his business by a mix of both producton and good management for success of the business.

SMEs play a vital role in the Kenyan Economy. The sector contributed over 50 percent of new jobs in the year 2005, despite their significance , past statistics show that three out of five businesses fail within the firsy few months of operation (Bowen,Morara and Mureithi ,2009). The economy of Kenya has contributed to grow despite a slowdown noted in 2011. Analysts agree that the economy registered considerable progress and improvement in 2012 despite various challenges.

1.1.1 Insurance services

Theft insurance is an insurance protection plan for your business. Theft insurance covers loss of business property within your work premises. These include;stock-in ‘trade, furniture, fittings and fixtures, machinery and many others. Theft insurance covers all acts of stealing, robbery and othe theft. Property owners should check with their insurance companies if they are not sure whether or not theft insurance is part of their policies and if theft insurance is not included, it should be purchased.

Depending on the policy terms, theft insurance policy may compensate the actual value of the property after incident has occurred or it may pay out the replacement value. In a replacement value policy, the structure will be replaced in the event of a theft case, whether it has depreciated or appreciated.

1.2 Statement of the problem.

Though SMEs contribution to the economy is high, this may be reduced due to the theft cases increase in Machakos town. There has been high prevalence of theft cases in Machakos town. Despite the existence of SMEs in Machakos town for years now, the majority seem  to have exihibited slow or no growth.

According to the Government of Kenya, (2005) SMEs have a high mortality rates due to hazards , capital and skill constraints and most of them rarely survive for 3 years making it difficult for them to growinto medium and large enterprises. Assess to credit to also a problem to this SMEs due to lack of security and may be some business owners lack of knowledge of accessing small loans from banks. This detrs them from development. Insurance services are also important since they reduce their vulnerability.

Studies have noted that majority of SMEs in Kenya and in particular Machakos town are not yet insured. External and internal risks threatens the performance, profitability and sustainability of this business. External risks include; natural disasters (e.g flooding and earthquakes), wars, political crises among others. Internal risks are involved with the running of the business and they include; competition, high labor turnover, financial profitability and growth.

1.3 Objectives of the study

General objective of the study.

The general objective of the study was to examine factors that influence decision to insure SMEs against fire in Machakos town.

Specific objectives of the study.

To establish the level of knowledge on theft insurance among SMEs owners in Machakos town.

To assess the attitude of SME owners towards theft insurance Machakos town.

To determine the magnitude of perceived benefits of theft insurance in Machakos town.

1.4 Research questions.

This study sought to answer the following questions;

What is the extent of knowledge on business on insurance among SME owners in Machakos town.

What is the attitude and perceived benefits by business owners (SMEs) towards theft insurance in Machakos town.

What are factors that influence the decision to insure SMEs against theft in Machakos town.

To what extent have the insured SMEs benefited from theft insurance.

1.5 Importance of the study.  The study highlighted the various challenges SMEs in Machakos town face and its impact on the growth of businesses in the area. The SMEs income income generating project is one way of improving the Kenyan economy. The findings of this study may be used for development purposes by the Kenyan government and even NGOs to increase the success rates of SMEs since the study provides significant information to be used by stakeholders in their struggle to develop the human resources required for Kenya’s socio-economic development.

The findings of the study are of great importance to these agencies and also policy makers because the SMEs will take off and be sustained. Policy makers through policy advocacy, facilitation of investment and achievement of Vision 2030 by helping to solve the problems of unemployment, reduce poverty levels, increase country incomes which will also contribute to economic growth.

Finally, the findings of the study will be effective to researchers and academicians who are interested in this area of study since they will need thee finding of the previous researches to be their imprical literature and also be used as reference materials for further studies.

1.6 Limitations of the study.

The study encountered some difficulties like inadequate research materials and literature, the research obtained insufficient information due to unresearched topic  from other researchers.  There was inaccurate data from respondents who seemed to be busy during interviews. There was also poor cooperation by some respondents who were unwilling to answer all the questions on the questionnaire due to ignorance or misunderstanding.

The research also came across respondents who were uncooperative, illiterate who were fearing not knowing what to say and how to put it. This challenge was overcomed and minimized by assuring the respondents that no names would be used in reference of the study since th purpose of the study was for academic use. An introduction letter from the university was also carried by the researcher as proof and also security purposes.

1.7 Delimitations of the study.

The study was a success due to the readily available and reachable respondents during gathering information regarding to the factors influencing decision to insure SMEs against theft in Machakos town.

Conceptual framework.

This research study sought to determine the impact of insurance services on the growth of SMEs in Machakos town. The independent variables of this study were insurance education, performance of SME’s, Business duration and credit. This study will therefore seek to establish the influence of the independent variables on the dependent variables which will be affordability and decision to insure SME’s against fire.

The effects of independent variables will be mediated by intervening variables which include;-Knowledge of insurance cover, affordability, Perceived Risks as well as perceived Benefits.

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