Mediating Role of Management Practices in the Relationship Between Financial Motivation and Poverty of Micro Enterprise Owners in Homa-Bay Sub-County, Kenya

Abstract

The average level of poverty in Kenya is 52% while the level of poverty in Homa-Bay County stands at 77.49%. Studies reveal that three out of five micro-enterprises (MEs) in Kenya fail within the first one year of operation. This study investigated the mediating role of management practices in the relationship between financial motivation and poverty among micro enterprise owners (MEOs) in Homa-Bay Sub County, Kenya. The specific objectives were: to establish levels of poverty, financial motivation, management practices and to investigate the relationship between financial motivation and poverty among the MEOs. The study was guided by resource based view of the firm and equity theories. The study adopted survey research design due to its cost effectiveness. The population of the study comprised 1200 MEOs. Through stratified random sampling, a sample size of 240 MEOs was picked. Questionnaires were used to collect the primary data. Secondary data were obtained from the Homa Bay County Trade and Development Office in the records of Kenya National Bureau of Statistics. Prior to data collection, the survey instrument was reviewed by the experts for content and construct validity. The reliability coefficient of the questionnaires using Cronbach's Alpha was 0.6. Descriptive statistics namely means and standard deviations were used and presented in form of tables and figures. Data was analysed by confirmatory factor analysis (CFA) and structural equation modelling (SEM). The models were compared using regression weights and Model Fit indices. Findings revealed that both income and consumption had a low mean (11= 2.3) indicating high poverty. Micro-credit, micro-saving, trade credit and loan guarantee also had a low mean (11= 2.6) indicating low financial motivation. Risk management, customer service, human resource, training and target setting had low mean (11= 2.2) indicating that management practices were low. The Goodness-of-Fit Indices for financial motivation, poverty and management practices (CMIN/DF=1.901, CFI=0.994, TLI=0.964 and RMSEA=O.036) indicated successful factor loading and positive relationship between financial motivation and poverty among the MEOs. The relationship between financial motivation and poverty had a path coefficient of 0.66. Management practices reduced the path coefficient from 0.66 to 0.02 indicating that management practices mediated the relationship making it more parsimonious than before. The conclusions are: poverty is high while financial motivation and management practices are low among the MEOs. Management practices mediate the relationship between financial motivation and poverty among the MEOs. The study recommends that MEOs should undergo training to improve income of their micro enterprises (MEs) to help reduce their poverty. The government should guarantee the ME loans to increase the MEOs' level of financial motivation. MEOs should improve their management practices. The findings may be used by policy makers, academicians, micro-credit practitioners, donors and MEOs to help them improve on their management practices.