Effects of Digital Credit on Small Business Performance in Obunga, Railways Ward, Kisumu County, Kenya

Small and Micro Enterprises play an important role in economic development of any nation by harnessing human capital, use of raw materials and technology. They require enough funds to facilitate expansion of operations, develop new products, hire new staff and acquire new facilities. Lack of capital and financing conversely has been identified as a major factor affecting their performance leading to their failures. Innovations in financial technology in the form of digital credit have taken advantage of these financing gaps and have come up with powerful tools to mitigate financing barriers faced by small businesses. This study sought to address the effects of digital credit on small business performance in Obunga, Railways ward in Kisumu, Kenya. The business performance was determined through operating cash flow, Sales volume and Net profit margin. Asymmetric Information theory and Default Risk Theory of Credit were selected to anchor this study. The study adopted descriptive research design. The target population was 454 Small and Micro Enterprises while the sample size was 212 Small and Micro Enterprises. The study adopted both stratified and simple random sampling techniques. Primary data was collected using structured questionnaires and interviews. Secondary data was collected through reviewing available records regarding digital credit and small business performance. The study adopted content validity. The data collected was analyzed using the Statistical package for social sciences version 24.0. Data was analyzed using descriptive statistics. The study findings conclude that the performance of the SMEs could be seen from profit margins, sales when they access digital credit.The study in addition suggests that the fast growth of fintechs had increased the cost of borrowing to SMEs and their repayment problems even though they offer flexible loan contracts to SMEs who have the ability to determine their own preferred loan repayment schedule. The study recommends the managers and owners of SMEs in Obunga ward to adopt an entrepreneurial mind-set that would support their ability to better gain financial access from various financial institutions Based on the study findings, it is also recommended that the government mobile loan institutions should consider lowering the costs involved in lending the credit. Lastly, the study recommends the managers and owners of SMEs in Obunga ward to make use of available flexible repayment options to borrow what their businesses actually require.