FINANCIAL INCLUSION AND FINANCIAL SUSTAINABILITY OF SMALL AND MEDIUM ENTERPRISES IN NAIROBI CITY COUNTY, KENYA
FINANCIAL INCLUSION AND FINANCIAL SUSTAINABILITY OF SMALL AND MEDIUM ENTERPRISES IN NAIROBI CITY COUNTY, KENYA
Charles Kiprono Sang - Postgraduate Student, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
Dr. Mark Suva - Lecturer, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
Dr. Bancy Muchira - Lecturer, Department of Accounting and Finance, School of Business Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
The study examined the effect of financial inclusion on the financial sustainability of small and medium enterprises (SMEs) in Nairobi City County, Kenya, against the backdrop of high SME failure rates and declining operational self-sufficiency levels that remained below the sustainability threshold between 2020 and 2024. Specifically, the study assessed the effects of financial product diversity, accessibility of financial infrastructure, and affordability of financial services on SME financial sustainability, while testing the moderating effect of financial literacy. Anchored on Financial Intermediation Theory, Resource-Based View, Financial Inclusion Theory, and Financial Literacy Theory, the study adopted a cross-sectional research design targeting 23,089 registered SMEs across eight sectors in Nairobi City County during the period between 1st July 2024 and 30th June 2025. A sample of 393 SMEs selected through proportionate stratified sampling was used, with primary data collected from SME owners and managers using structured questionnaires. Data were analyzed using descriptive statistics, correlation analysis, and Ordinary Least Squares regression with heteroscedasticity-robust standard errors in Stata version 18 following relevant diagnostic tests. The findings revealed that financial product diversity and accessibility of financial infrastructure positively and significantly influence SME financial sustainability, whereas affordability of financial services exerts a significant negative effect. Financial literacy significantly moderated the relationship between financial inclusion and financial sustainability by strengthening the positive effects of financial product diversity and infrastructure accessibility while reducing the negative effect of high financial service costs. The study concluded that financial inclusion contributes more effectively to SME financial sustainability when complemented by adequate financial literacy and recommended SME-focused financial product diversification, affordable inclusive finance policies, and targeted financial literacy interventions.
