FACTORS AFFECTING INSURANCE UPTAKE AMONG THE SMALL AND MEDIUM

SIZED BUSINESSES (SMEs) AND THEIR GROWTH

A CASE STUDY OF SMEs AND STREET VENDORS RUIRU MARKET

PRESESNTED BY;
GEORGE NZAU MUTINDA
BAF-01-0061/2019

A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF BUSINESS AND

ECONOMICS IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE
BACHELOR’S DEGREE IN ACCONTING AND FINANCE OF ZETECH UNIVERSITY.
 DECLARATION
I declare that this research project is my original work and has not been submitted to any other institution or
examination body.

Signature: ____________________ Date: __________________

George Nzau Mutinda
BAF-01-0061/2019

By the supervisor
This is to certify that this research project has been submitted for examination with my approval as the university
supervisor.

Signature: ____________________ Date: _________________

Samuel Kariuki
Supervisor
Lecturer, Zetech University.

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 DEDICATION
This project is a special dedication to the Almighty God, for his love, kindness, and the gift of life. To my parents, who
have always encouraged me to strive for the best. To my siblings, who consistently reminded me of the repercussions
of procrastinating during my studies. To my lecturer, who enabled me to do this research using his expertise.

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 ACKNOWLEDGEMENT
First and foremost, I would like to thank my supervisor, Mr. Samuel Kariuki, for his assistance and direction in class
during the preparation of this research. I would also want to thank Zetech University library staff who assisted me with
the essential research resources throughout the project. I would also like to thank my parents for their support and
inspiration through the writing of this project.
Your support is highly appreciated. May God bless you abundantly.

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 TABLE OF CONTENT

Table of Contents
DECLARATION.................................................................................................................................................................ii

DEDICATION...................................................................................................................................................................iii

ACKNOWLEDGEMENT..................................................................................................................................................iv

TABLE OF CONTENT.......................................................................................................................................................v

ABBREVIATION AND DEFINITION OF TERMS......................................................................................................viii

ABSTRACT.......................................................................................................................................................................ix

CHAPTER ONE: INTRODUCTION TO THE STUDY....................................................................................................1

1.0 INTRODUCTION.....................................................................................................................................................1

1.1 BACKGROUND OF THE STUDY..........................................................................................................................1

1.2 SMES IN KENYA.....................................................................................................................................................2

1.3 PROBLEM STATEMENT........................................................................................................................................3

1.4 OBJECTIVES............................................................................................................................................................4

1.4.1 GENERAL OBJECTIVES.................................................................................................................................4

1.4.2 SPECIFIC OBJECTIVES...................................................................................................................................4

1.5 RESEARCH QUESTIONS.......................................................................................................................................4

1.6 SCOPE OF THE STUDY.....................................................................................................................................4

1.7 SIGNIFICANCE........................................................................................................................................................4

CHAPTER TWO: LITERATURE REVIEW......................................................................................................................5

2.0 INTRODUCTION.....................................................................................................................................................5

2.1 THEORETICAL LITERATURE..............................................................................................................................5

2.1.1 Economic Theory of Insurance...........................................................................................................................5

2.1.2 The Cumulative Prospect Theory (Cpt)..............................................................................................................5

2.2 EMPIRICAL REVIEW.............................................................................................................................................6

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 2.2.1 Access to Finance...............................................................................................................................................6

2.2.2 Public Awareness/Business Service Information...............................................................................................7

2.2.3 Customer Service Delivery.................................................................................................................................7

2.3 RESEARCH GAP.....................................................................................................................................................8

2.4 CONCEPTUAL FRAME WORK.............................................................................................................................8

CHAPTER THREE: RESEARCH METHODOLOGY......................................................................................................8

3.0 INTRODUCTION.....................................................................................................................................................9

3.1 RESEARCH DESIGN...............................................................................................................................................9

3.2 POPULATION..........................................................................................................................................................9

3.3 DATA COLLECTION..............................................................................................................................................9

3.4 SAMPLING SIZE...................................................................................................................................................10

3.5 DATA ANALYSIS.................................................................................................................................................10

3.6 ETHICAL CONSIDERATION...............................................................................................................................11

CHAPTER 4: DATA ANALYSIS, RESULTS, AND DISCUSSION..............................................................................12

4.0 INTRODUCTION...................................................................................................................................................12

4.1 RESPONSE RATE..................................................................................................................................................12

4.1.1 General Response Rate.....................................................................................................................................12

4.1.2 Age Response Rate...........................................................................................................................................13

4.2 INSURANCE UPTAKE..........................................................................................................................................14

4.3 ACCESS TO FINANCE..........................................................................................................................................15

4.4 ACCESS TO BUSINESS SERVICES INFORMATION.......................................................................................16

4.5 CUSTOMER SERVICE DELIVERY.....................................................................................................................17

4.6 SUMMARY.............................................................................................................................................................18

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS................................................................................19

5.0 INTRODUCTION..............................................................................................................................................19

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 5.1 CONCLUSION........................................................................................................................................................19

5.2 RECOMMENDATIONS.........................................................................................................................................20

5.2.1 Recommendations to scholars..........................................................................................................................20

5.2.1 Recommendations to the insurance firms.........................................................................................................20

5.2.3 Recommendation to the government................................................................................................................20

5.2.4 Recommendation to the SME owners..............................................................................................................20

REFERENCES..................................................................................................................................................................21

APPENDIX........................................................................................................................................................................22

APPENDIX 1: QUESTIONNAIRE..............................................................................................................................22

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 LIST OF FIGURES AND TABLES
Table 4.1: General response rate....................................................................................................................................12

Chart 4.1: Response rate percentage..................................................................................................................................13

Table 4.2: Age response rate.............................................................................................................................................13

Chart 4.2: Age response rate..............................................................................................................................................14

Table 4.3: Insurance Penetration.......................................................................................................................................14

Table 4.4: Access to finances............................................................................................................................................15

Figure 4.4: Access to finance.............................................................................................................................................16

Table 4.5: Access to business services information..........................................................................................................16

Chart 4.5: Access to business service information............................................................................................................17

Table 4.6: Customer service delivery................................................................................................................................17

Chart 4.6: Customer service delivery................................................................................................................................18

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 ABBREVIATION AND DEFINITION OF TERMS

1. SMEs Small and Medium Sized Businesses

2. GOK Government of Kenya
3. SMTHES Small and Medium-Sized Tourism and Hospitality Enterprises
4. CPT Cumulative Prospect Theory
5. CBK Central Bank of Kenya
6. GDP Gross Domestic Product
7. KNBS Kenya National Bureau of Statistics
8. SACCOS Savings and credit cooperative society

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 ABSTRACT
Insurance penetration in the country is typically low, particularly among Kenya's SMEs. Many Kenyans regard this as a
luxury rather than a need, which contributes to the limited uptake of these coverings. SMEs employ many Kenyans and
contribute significantly to the country's GDP. Despite the importance of SMEs, their insurance education is limited,
with many SME owners unaware of what insurance is. These SMEs are bound and vulnerable to dangers on a daily
basis, including fire, death, property damage, theft, and general business loss. Many SMEs owners choose savings,
SACCOS, and family contributions to cope with hazards if they exist at all and if the degree of risk is acceptable.
The growth and overall size of covered SMEs were significantly higher than those without insurance coverage. It is
evident that hazards do emerge even if the owners of these SMEs are hopeful, as witnessed in many areas, particularly
in Nairobi's Gikomba market, where there is a frequent fire breakout; this should be a reason that encourages SME
owners to obtain insurance coverage.
This survey was carried out in Ruiru sub-County among SME owners. The response rate was high, with 95 percent of
the people in the research responding. The population that we investigated included street vendors, business owners,
‘mama mbogas,' and jua kali.
According to the findings of the survey, women were more involved in SME than men. Even if this was accurate,
gender was removed as a factor that contributes to poor insurance uptake.
Education was shown to be a crucial driver of insurance uptake among SMEs. According to the survey, individuals
with a university degree all had insurance coverage for their businesses, but those with only a primary education did
not. The report later advised that the government invest in educating SME owners on the relevance of insurance to their
firms. The report urged SME owners to strive to educate themselves on the necessity of insurance to their businesses.
74 percent of the people polled knew about insurance. These SMEs were aware of the need of insurance to their
businesses, but they did not take it seriously. According to the analysis, insurance companies should begin rampart.
According to the survey, insurance companies should begin aggressive advertising of their goods and educate SME
owners on the need of having insurance coverage.

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 CHAPTER ONE: INTRODUCTION TO THE STUDY
1.0 INTRODUCTION
It is without a doubt that insurance is a critical financial tool that any business owner right from the small one to the
larger organization should have. Insurance helps by giving business owners that sense of surety that their business is
covered against any risk possible and that their business is safe. SMEs also play a very important role in the
development of the country and in the employment of so many citizens there for contribute so much to a country’s
GDP.
This chapter gives us a brief introduction and definition of who the insurance and the SMEs are, how the uptake of
insurance among the SMEs is and their general growth. This chapter also states the problem that this study aids to
address, the objectives, significance and limitations to the study.

1.1 BACKGROUND OF THE STUDY

SMEs are key contributors to economic growth and employment yet have limited access to financial services including
the insurance. Formal small and medium sized 3nterprises SMEs contribute approximately 60% of total employment
and 40% national production GDP in emerging economies. SMEs form a fundamental segment of the economy and
provide employment to millions of people. (CBK annual report 2020)
When we talk of insurance many Kenyans first thought are the expensive premiums offered by these insurance
industries and for a long time even the SMEs owners and the vendors across the country have had this mentality that
having an insurance cover for your business is a luxury that only the big guys in business gets to enjoy, they fail to
realize that this is necessity especially for someone in business.
SMEs are bound to everyday risks they may be affected by accidents, tragedies and natural calamities (Kamara,J.M&
Dr. Makori 2017). There for there is need for these SMEs to have insurance covers to protect their businesses against
any risk that might occur. The insurance uptake in Kenya is generally low and among the SMEs it almost minimal there
for this study aims to know what is the cause of this low intake of insurance uptake among the SMEs and to look at the
growth of these SMEs that have insurance cover for their businesses.

1.1.1 THE INSURANCE INDUSTRY IN KENYA.

Insurance is a contract involving one party’s offer of financial indemnity to another party against possible damages or
losses in the future in return for a premium. (Rejda 2012). By paying a premium, possible losses and the related

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financial encumbrances of the business are transferred to an insurance company based on an insurance policy agreed
upon by the parties.
There are 58 insurers and reinsurers in Kenya and the market is dominated by CIC, Jubilee, Britam, ICEA, Lion
General and APA insurance. General insurance dominates the market industry, accounting to 60% of the industry gross
written premiums. Kenya has the lowest penetration rate in sub-Saharan Africa which is 2.3% as at December
2020.with South Africa leading at 17%. This is due to the fact that most Kenya population perceive insurance as anice-
to-have product rather than one that is essential and many opt into personal savings and SACCOS (Cytoon Investments
Nov 2021).
According to Mohan Chen 2021 insurance penetration remains low among the SMEs due to lack of targeted go-to-
market strategies hence SMEs represent less than one-third of the total insurance market premiums in the country.
According to a survey conducted by Britam the key risk, perceived by the SMEs is illness of self, family members and
staff which is a direct result of the relatively small size of the businesses.
Guha-Khasnobis and Ahuja 2004, Frederick et al 2021 noted that even though informal and formal sector businesses
face analogous risk including illness, death, accidents, loss of properties, fires and theft among others their intake of
insurance is still low.
Insurance companies have come up with small policies that will help these SMEs with these risks, they have micro-
insurance which is unique for these SMEs as their premiums are affordable and the delivery channel are widespread for
ease of access due to widespread nature of the informal economy and persons who are the target.

1.2 SMES IN KENYA

Although there is no universally agreed definition of SMEs, some of the commonly used criteria are the number of
employees, value of assets, value of sales and size of capital as well as turnovers. SMEs covers non-farm activities such
as manufacturing, mining commerce and services.

The Kenya National Bureau of Statistics (KNBS) 2016, National micro-small and medium establishment (MSME)
survey found out that there were about 1.56 million licensed MSMEs and 5.85 million unlicensed businesses
employing about 14.9 million persons, majority of which are jua kali enterprises. Most of the unlicensed businesses
operate in the residential areas with no special outfits for the business are more mobile, Said the survey while noting
that MSMEs sector contribute to 28.5% of the total economy.
According to Management Magazine (2017) SMEs sector continues to experience many constrains that have inhabited
the realization opt its full potential such as unfavorable operating environment according to the then CS Kiunjuri. It
stated that about 2.2 million businesses are being closed within a span of five years.
SMEs in Kenya face major challenges right from startups since for startup many rely on loans or fund raising by friends
and family as capital, and for sure obtaining these loans from these financial institutions are always so hard for these

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financial institutions always require some form of security for them to issue these loans, security of which many SMEs
owners don’t have.
Another key feature that these SMEs face is the lack of insurance knowledge or cover for their businesses as many
consider insurance a very prestigious thing to have rather than a necessity this for me is one of the leading factors that
leads to the close-up of these SMEs.
It is there for important for such SMEs to be able to know some of the insurance covers that are efficient, important and
favorable to their businesses.

1.3 PROBLEM STATEMENT

It is without a doubt that the unemployment rate in Kenya is so high leaving many graduates and the general public
unemployed. As a result of this many Kenyans have opted to self-employment. Many decide to venture into SMEs and
this translates to the 70% contribution to the Kenyan GDP and the taxes by the SMEs. Venturing into SMEs is not that
difficult as it requires low capital the hurdle comes in growing them and many SMEs owners don’t know and some just
assumes the importance of the insurance industry and their importance in the growth of their business.
There is low uptake of the insurance covers among the SMEs in Kenya and as a result of this if at all there is a risk that
the owner of these SMEs cannot sustain leads to closure of these enterprises. Insurance is there for plays an important
role in the growth of these SMEs.
According to many insurance companies any small and medium sized business with an asset can be insured against any
risk. In any business it is possible to note that the possibility of loss must exist even though the person exposed to the
possibility might not be aware (Marwa,S. 2007). There are many [possible risks that that SMEs face a common one is
the fire risk which is so common in the market of Gikomba in Nairobi.
According to Muturia (2005) as quoted by Ndungu (2013) a business can obtain finances for operations and further
expansion through contribution of capital by owners, sale of stocks or loans obtained from banks and other financial
institutions. In order to protect these capitals which for sure is not easy to generate SMEs owners need to start taking
these insurance covers for their businesses.
Most studies have noted that majority of the SMEs in Kenya and particularly in Nairobi are not yet insured for instance
a study by Onyango (2009) as quoted by Makori& Kamara (2017) noted that only 26% of the SMEs in Nairobi are
insured. Many opt into savings, SACCOS, market diversification and security guards as a strategy for dealing and
covering risks (VIFFACONSULT 2020).
The study of VIFFACONSULT 2020 also concluded that these SMEs tend to deal with interruptions outside their
business through harambee by family members and friends, personal savings, business profits and sale of personal
property.

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1.4 OBJECTIVES
1.4.1 GENERAL OBJECTIVES
The general objective of the study was to examine the factors influencing insurance uptake among the SMEs in Ruiru
Sub-County.

1.4.2 SPECIFIC OBJECTIVES

1. To establish the influence of access to finance on the uptake of insurance among the SMEs in Ruiru Sub-
County.
2. To access the effect of access to business service information services on the penetration of insurance services
among the SMEs in Ruiru Sub-County.
3. To establish the relationship between insurance uptake and customer service among the SMEs in Ruiru Sub-
County.

1.5 RESEARCH QUESTIONS

1. How does access to finance affect the uptake of insurance services among SMEs in Ruiru Sub-County?
2. What role does access to business service information/ awareness play on insurance uptake among SMEs in
Ruiru Sub-County?
3. What is the relationship between insurance uptake and customer service delivery among SMEs in Ruiru Sub-
County?

1.6 SCOPE OF THE STUDY

This study was conducted in Ruiru market in Ruiru sub-County in between February and April 2022. During the study
the researcher covered Ruiru market interviewing and offering questionnaires to the vendor’s and SMEs owners. It
required the researcher to walk from one vendor to another and through shops that are located along the streets. The
researcher conducted the research the research on 100 street vendors and SMEs owns during the study.

1.7 SIGNIFICANCE
A low insurance penetration rate reduces earnings for insurance intermediaries as well as investors in the insurance
sector. Firstly, the study's findings will help policymakers develop strategies, laws, and regulations to increase
insurance penetration in Kenya.
Secondly, the findings will assist the general population, who are harmed when calamities such as death, injury,
sickness, disability, accidents, burglary, theft, and fire occur due to a lack of insurance coverage. Thirdly, the study's
findings will inform the Insurance Regulatory Authority, which governs Kenya's insurance business, about what may
be done to broaden the insurance market and increase penetration. Finally, the study's results

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 CHAPTER TWO: LITERATURE REVIEW
2.0 INTRODUCTION
This chapter consists of theoretical and empirical literature where it will cover theories that support this study and look
at other studies that have done this research and compare it to my work. It will also cover the research gaps in that
possibly some scholars may find interesting to study.

2.1 THEORETICAL LITERATURE

The study was founded on the ideas and models presented in further detail in the sections below.

2.1.1 Economic Theory of Insurance

This theory tends to explain why insured are willing to pay a premium larger than the net premiums, that is, the
mathematical expectation of the insured loss.
This theory insinuates that a decision maker, generally without being aware of it attaches a value u(w) to his wealth w
instead of just w where u(.) is called the utility function.
To decide between random losses X and Y, he compares E[u(w-x)] with E[u(w-y)] and chooses the loss with the highest
expected utility. With this model, the insured with wealth w is able to determine the maximum premium p+ he is
prepared to pay for a random loss X.
This is done by solving the equilibrium equation E[u(w-x)]=u(w-y). At the equilibrium, he does not care in terms of
utility if he is insured or not. This model applies to the other party involved as well. The insurer with his own utility
function and perhaps supplementary expenses will determine a minimum premium p-. if the insured’s maximum
premium p+ is larger than the insurer’s minimum p-, both parties involved increases their utility if the premium is
between p- and p+.

2.1.2 The Cumulative Prospect Theory (Cpt)

This theory explains why the insurance uptake is a function of the perceived risk.
The CPT which was introduced by Tversky, Kahneman 1992 assumes that people are risk averse in some cases and risk
receptive in other cases. It also seeks to explain how people make rational decisions regarding uncertainties. The theory
also assumes that people are generally risk averse and will initiate strategies to deal with such aversions. The theory
also is characterized by two main qualities including sensitivity and loss aversion (Frederick et al 2020).
Diminishing sensitivity implies that subjects have trepidations relative to gains and risk seeking regarding losses, while
loss aversion suggests that when it comes to taking decisions under risky and uncertain circumstances, loss appear
larger than gains.

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Loss aversion can have an impact on insurance behavior as businesses would find insurance as a buffer against losses
associated with hazards thus the extent to which insurance is perceived as effective in an guarding against losses would
influence uptake (Frederick 2020).
This suggest that insurance becomes important in optimal safeguarding against risk instead of imply reducing it.
Though the CPT recognizes that customers decision making is associated with risk and uncertainty, this idea is limited
in the sense that it assumes perceived risk is linked with only negative outcomes ( Olya& Al-ansi, 2019; Frederick
2020).

2.2 EMPIRICAL REVIEW

A study by Frederick et al 2020 about insurance uptake among SMTHES concludes that half of the SMTHES that were
involved in their study were insured against risk mitigation measures. The regression model indicated that operational,
technological, environment and health risks were concerns that significantly influenced insurance enrollment by
SMTHES. The more risk averse businesses are regarding these hazards, the greater the likelihood of insurance uptake
(Schneider, 2004; Frederick 2020)
A study by Chodokufu,K., Chiliya.N 2014 concluded that factors such as the reliability of an insurer, staff knowledge
and brand name of the insurer have a great impact on the decision made by SMEs to build a relationship with the
insurance provider. Throughout the study the respondents who had been approached by an insurance broker and
received training had a business relationship with the insurance provider.
A blog by SME finance forum on a wakeup call to expand insurance services to SMEs as it showed the involvement of
insurance companies to SMEs as it stated that insurance companies had already begun providing digital products
specifying failure to SMEs including financial security for travel agents, flexible credit insurance solutions and real-
time invoice based credit insurance for B2B marketplace.
A study by Tilwita,W.T on the determinants of insurance demand by SMEs concluded that the uptake of insurance by
SMES depended on the role of education on joining insurance schemes, influence by insurance agencies and the level
of income. The study also recommended that SMEs owners need to be educated more on insurance products.

2.2.1 Access to Finance

Credit is regarded as more than just another resource, similar to labor, land, equipment, and raw materials (Rahji,
2000). One of the causes for the fall in SMEs' contribution to the economy is the lack of a formal national credit policy
and credit institutions that can aid businesses. Credit allows businesses to grow in size and output. According to
(Olagunju, 2000), credit facilities, as well as the usage of enterprise capital and labor resources, expedite the adoption
process and increase the scale of enterprise.
Most SMEs will have less access to financial resources via inheritances or, more commonly, wealth amassed through
home ownership or personal savings. Due to their small funds, entrepreneurs face far higher difficulties obtaining
loans, resulting in missed business chances. As a result, MSEs must be aware of the complete range of financial choices
accessible in Kenya in order to:
i. Determine the most important SME financing requirements.

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 ii. Understand the various financial products available and how to obtain them; and
iii. Determine funding providers to suit the indicated demands.

2.2.2 Public Awareness/Business Service Information

Access to business information services through the national agricultural support system has been promoted by regional
governments and international development organizations as a tool for enhancing agricultural productivity in Sub-
Saharan Africa (Evenson and Mwabu,1998). Furthermore, investments in information and communication technology
have considerably increased the efficiency of Africa's agriculture marketing systems (Haggblade,2011). Market access
facilitates marketing, which is a crucial success function for SMEs. Information is essential for market access and is the
foundation of every marketing system. Market access in developing countries is a major challenge for small businesses
due to market imperfections caused by a lack of market information, a lack of linkages between supply chain actors,
distortions or the absence of input and output markets, high transaction costs, and the presence of trade intermediaries.
There are several techniques for enhancing market access, one of which is the use of ICT. Strategies that increase
market access have a significant influence on the performance of small businesses (Shepherd, 2007).
According to Pandit (2015), selling insurance to the rural population is complicated by a lack of financial literacy, a
low per capita income, a sour attitude among the public, and an unwillingness on the part of intermediaries to go too far
locations. To enter the rural sector, he proposes that insurance firms have a long-term approach, build products that are
appropriate for the rural population, and analyze the peculiarities of the rural people (lifestyles and wage patterns).
According to AKI (2015), the use of alternative distribution channels and the usage of technology are also expected to
increase insurance penetration in the country.

2.2.3 Customer Service Delivery

The insurance sector, like any other business in Kenya, is challenged to serve an increasingly aware and sophisticated
consumer. IRA (2015) discusses the importance of activities focused on innovation, customer attention, and
cooperation in order to promote sustainable growth and capitalize on emerging possibilities. Ghobadian, Speller, and
Jones (1994) identified dependability, credibility, responsiveness, competence, customisation, politeness, access,
security communication tangibles, and understanding or knowing the consumer as distinct service aspects in an earlier
research. Masood and Tripti (2010) developed a six-dimensional framework for life insurance, consisting of
individualized financial planning, assurance, corporate image, competence, tangibles, and technology. According to
their findings, service quality aspects influence customer happiness with the firm, its agents, and the client's overall
contentment.
As a practitioner in the Kenyan insurance sector, insurance customers always expect timely claims’ payment, regular
communication from insurance companies, security, responsiveness to questions and concerns raised about the product,
processes, payments, and so on, as well as the reliability of information and assertions made from the point of purchase
all the way through to the delivery of the promised benefits. Managing service quality in satisfaction involves an
explicit knowledge of service and service quality, as well as a method to quantify service quality. According to them,

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the aspects of service quality include environment quality, outcome quality, interaction quality, and integration quality.
The methods, actions, and skills of the service provider, in their opinion, have an influence on the customers'
experience, outcome, interaction, and value generation.

2.3 RESEARCH GAP

It is without a doubt from the above that insurance uptake among SMEs is generally slow and that insurance is averring
critical component in the growth of businesses. There need to be studies on the contribution of insurance in the growth
of SMEs for this will help SMEs owners know the importance of insurance in the growth of these SMEs.
Other studies should also aim into putting looking at the insurance covers that are available for the SMEs in Kenya
generally. The role of Kenyan government in the growth and education of SMEs should also be considered as SMEs
are very important to the development of the economy.

2.4 CONCEPTUAL FRAME WORK

The study will look at access to finance, access to information/public awareness, and quality customer service as
independent factors and insurance uptake as the dependent factor.

Access to Finance

 Funding sources
 Insurance collaterals
 Repayment duration review

Insurance uptake

 Insurance uptake increase

Business services information
 Insurance premiums increase
 Use of digital platforms
 Compliance with insurance policies
 Seminars and trainings

Quality Customer services delivery

 Offering average resolution time

 Overall customer service satisfaction.
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 CHAPTER THREE: RESEARCH METHODOLOGY
3.0 INTRODUCTION
This chapter will cover how this research was conducted, the methods used during the collection of data, the targeted
population that is how big the population was, data analysis and the ethical considerations

3.1 RESEARCH DESIGN

This is qualitative type of research and falls under descriptive type of research as it involves the collection of data
analyzing them and presenting the already analyzed data in a more understandable manner.

3.2 POPULATION
The targeted population for the study was streets vendors and SMEs owners in Ruiru Sub-County. During the study the
researcher targeted a population of 1500 SMEs. The location is also considered more accessible and thereby creating a
more efficient and cost effective data collection process. The unit of analysis was the registered SMEs in Ruiru Sub-
County.
Yamane (1967) formula was used to determine the sample size for the research.
n= N
1+N(e)2

Where n is the sample size, N is the population size and e-error significance (0.1).
n = 1500

1+1500(0.1)2

n = 94

Simple random sampling was applied and probability sampling was introduced so as to ensure that each subject in the
population had an equal chance of being selected.

3.3 DATA COLLECTION

The study analysed data from original sources. This primary data was gathered through the use of questionnaires with
closed-ended questions. These questionnaires were distributed to various SMEs at their designated workplace. These
questionnaires were delivered in hardcopy, and the SMEs filled them out on their own to ensure data collecting
dependability, precision, and efficiency.

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This was due to the need that all SMEs operators exhibit a suitable degree of education and competency before being
registered with IRA. Because the SMEs operate in the same market, the questionnaires were standard to guarantee
uniformity in the data gathering technique. The questions were intended to gather quantitative data. This data collecting
strategy was deemed efficient and successful due to the researcher's limited participation in giving the surveys.

3.4 SAMPLING SIZE

Yamane (1967) formula was used to determine the sample size for the research.
n= N
1+N(e)2

Where n is the sample size, N is the population size and e-error significance (0.1).
n = 1500

1+1500(0.1)2

n = 94

Simple random sampling was applied and probability sampling was introduced so as to ensure that each subject in the
population had an equal chance of being selected.

3.5 DATA ANALYSIS

The analysis of the data collected from the questionnaires was done using descriptive and inferential statistics. The
investigation utilized a multiple linear regression equation to measure the interrelation between the dependent and
independent variables. This was done objectively in the multiple linear regression model below:

Y = bi+b1X1+b2X2+b3X3
Whereby;

Y = insurance uptake
{bi; i=1, 2, 3} = The coefficients for the various independent variables
X1 = access to finance
X2 = business service information/awareness
X3 = customer service quality

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The study used multiple linear regression model to test the effect of the independent variables on the dependent
variable. Various diagnostic tests were done on the data collected to meet the basic assumptions of regression so as to
estimate regression models accurately. The tests applied included an assessment of the assumptions of linearity,
homoscedasticity and collinearity.

3.6 ETHICAL CONSIDERATION

The information gathered was treated with the highest privacy and confidentiality, and was only intended to be used for
academic reasons.
The research participants were entitled to privacy, anonymity, and confidentiality, and the data gathering procedure
avoided injury, treachery, or dishonesty. It was also stated that the research findings will be made available to
respondents upon request. The study's findings would be made public through academic papers, articles in business
journals, and emails for agents who participated in the data gathering procedure.

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 CHAPTER 4: DATA ANALYSIS, RESULTS, AND DISCUSSION
4.0 INTRODUCTION
This chapter covers the data analysis, presentation of the findings, discussion and summary. This chapter answers the
research questions in chapter one which were; if the SMEs owners had knowledge of insurance, the types of insurance
covers they had, reasons not to take insurance products, risks associated with these SMEs and finally how the SMEs
cover from risks if they occur. The chapter also entails the response rate and is diagrammatically represented.

4.1 RESPONSE RATE

4.1.1 General Response Rate
This shows how the targeted population was able to respond to the researcher’s questionnaires and interviews. It shows
the overall response from a sample of 94 SME owners in Ruiru sub-County.
Response rate = (Filled and returned questionnaires / Issued questionnaires) x 100

Table 4.1: General response rate

Population category Response rate Percentage

Returned questionnaires 87 92.55%

Unreturned questionnaires 7 7.45%

Total 94 100%

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 RESPOSE RATE PERCENTAGE
Unreturned questionnaires
7%

Returned questionnaires
93%

Returned questionnaires Unreturned questionnaires

Chart 4.1: Response rate percentage

The data above shows that 95% of the population responded to the research while 5% did not respond.

4.1.2 Age Response Rate.

The response rate was as presented in table 4.2.

Table 4.2: Age response rate

Age bracket Number of responders Percentage

18-30 years 58 67%

30-45 years 19 2210%

45 years and above 10 11%

Total 87 100%

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 Age response rate.

45 yrs and above 11%

30-45 yrs 22%

18-30 yrs 67%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Age response rate.

Chart 4.2: Age response rate

The above data shows that the population aged 18-30 years are more involved in the SMEs that the rest of the
population. The researcher also concluded that among the respondents age was not a factor undermining the uptake of
insurance among the SMEs in Limuru town.

4.2 INSURANCE UPTAKE

The dependent variable of the research was insurance uptake. The findings of the study are presented in the table
below.

Table 4.3: Insurance Penetration

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Descriptive statistics

N Mean Sd. Variance

Deviation
Insurance shops/agents within the area 87 2.34 1.319 1.740

Services offered by the insurance companies 87 2.87 1.174 1.378

Valid ‘N’ 87

4.3 ACCESS TO FINANCE

The study aims to determine the impact of access to capital on the acceptance of insurance services by SMEs in Kenya.
It was critical that MSEs be informed of the entire scope of insurance alternatives accessible to them. This helped them
to comprehend the variety of insurance products available and how to obtain them, as well as discover financial
providers to satisfy the stated demands.
The key challenges that prevent entrepreneurs from obtaining funding to develop manufacturing MSEs in Nairobi
County include a lack of collateral, a lack of information about loan sources, transaction expenses, and the laws and
processes involved with public financial management. The study's findings are summarized in the table below.
Table 4.4: Access to finances

Source of finance Respondent Percentage

Insurance 17 20%

Personal savings 30 34%

Loans 20 23%

Fund raising 8 9%

Sacco 12 14%

Total 87 100%

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 Access to Finance
40%

35%

30%

25%

20%

15%

10%

5%

0%
Insurance Personal savings Loans Fund raising Sacco

Percentage

Figure 4.4: Access to finance

4.4 ACCESS TO BUSINESS SERVICES INFORMATION

The respondents were asked to indicate their first sources of information about insurance and insurance services. The
results are tabulated below;
Table 4.5: Access to business services information

Sources of insurance information Frequency Percentage

School/Colleges 27 32%
Insurance agents 24 28%
Family/friends 13 15%
Newspaper/Journals 10 11%
Radios 7 6%
Televisions 6 8%
TOTAL 87 100%

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 Business service information

Televisions

Radios

Newspaper/Journals

Family/friends

Insurance agents

School/Colleges

3% 8% 13% 18% 23% 28% 33%

School/Col- Insurance Family/ Newspaper/ Radios Televisions
leges agents friends Journals

Percentage 0.32 0.28 0.15 0.11 0.06 0.08

Chart 4.5: Access to business service information

4.5 CUSTOMER SERVICE DELIVERY

The purpose of the study was to determine the association between customer service and insurance penetration in
Kenya.
The results were summarized below:
Table 4.6: Customer service delivery

Customer service delivery Frequency Percentage

YES NO YES NO

Customers satisfied with level of service 17 29 20% 33%

Public has trust toward the industry 23 24 26% 28%
Insurers solve queries fast 12 6 14% 7%
Customers feel value for their money 35 28 40% 32%
Total 87 87 100% 100%

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 Customer service delivery

32%

40%

7%
Insurers solve queries fast
14%

28%
Public has trust toward the industry
26%

33%
Customers satisfied with level of service
20%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

NO YES

Chart 4.6: Customer service delivery

4.6 SUMMARY
The response rate of the targeted population was good since the researcher had a 93% response rate in general. From
the study the researcher noted that the female engaged more in these SMEs since most of the SME owners were female.
The age bracket of 18-30 years was also spotted to be so many showing the youth involvement in this industry to be
good. Most of the respondents had knowledge of insurance, what it is and what it does, the problem only came in the
involvement of these SMEs in taking insurance cover. Most of the respondents used personal savings to help them in
case they have incurred a risk as opposed to insurance. Theft was also the main risk covered by most of the SME
owners showing that there are high instances of theft among the SMEs in Ruiru sub-County.

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 CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
5.0 INTRODUCTION
This chapter presents the conclusion and recommendations of the study findings and objectives. The purpose of this
study was to know the factors that hinders insurance uptake among the SMEs and the study was conducted in Ruiru
sub-County among SMEs operators.

5.1 CONCLUSION
In conclusion;
From the study, the data showed that yes, the SME owners had knowledge of insurance being there and their products,
but they considered it a luxury not a necessity and those who had insurance cover were seen as those who are well off.
Since according to the data 70% of the entire population in study had knowledge of insurance existence with only 26%
of the population having no clue what insurance was.
Secondly, most of the SME owners preferred personal savings and other related fields to help them cover their risk as
opposed to insurance, from the data it was noted that 31% of the entire population had personal savings as their
preferred method of dealing with risks, 11% had insurance, 21%use loans, 16% used fund raising and SACCOs while
the worst of all was that 5% of the population did nothing at all.
In addition to those, education was found out to be the leading determinant of insurance uptake among the SMEs since
from the collected data it was noted that 70% of those with insurance cover had a university degree, 20% had a college
diploma, 10% had a high school certificate and those whose highest level of education was primary school had no
insurance cover at all. This shows how school plays an important role i9n the development of the nation and the
insurance sector to be specific. From the above data it can also be concluded that the level of entrepreneurial skills also
played an important role in the uptake of insurance covers since education improves ones entrepreneurial skills which
is a main determinant of success in any business.
Furthermore, the types of risks that those who had insurance cover had were; cover against theft with 40%, fire being
28%, health of employees had 12% and long term disability with 20%. It was noted that theft was the major risk that
these SMEs face since almost all the population who had insurance, covered a theft as a risk.
Availability of funds was also another determinant of insurance uptake among these SMEs since from our observations
those whose businesses were not doing so well had no insurance covers and those who had insurance covers had
businesses that were doing well and even some had more than one shop.
From the study even though women involvement in SMEs is higher than that of men, sex and age were not a
determinant of insurance uptake among the SMEs.

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5.2 RECOMMENDATIONS
5.2.1 Recommendations to scholars
Since this study is only based in Ruiru sub-County, the findings may not reflect the situation of the entire population;
therefore, scholars from other parts of the country must conduct the same research and possibly publish their findings,
which will undoubtedly differ from the findings of this specific study.
I may also suggest that a research on the role of insurance firms to the growth of small and medium-sized businesses be
undertaken for SMEs to learn more about the insurance sector's engagement in the market and how this industry is
extremely important in the growth of SMEs.
I would also advocate conducting research on the impact of banks and other financial institutions on the growth of
SMEs. How do banks decide who gets loans and financial guidance from SMEs?

5.2.1 Recommendations to the insurance firms

I would advise the insurance industry as a whole to send representatives into the market with the goal of educating
SME owners on the necessity of obtaining insurance coverage. They also require adaptable insurance coverage for
small and growing firms. Financial and management assistance should also be prioritized so that SME owners do not
face risks connected with poor management and mismanagement of cash.

5.2.3 Recommendation to the government

The Kenyan government should invest in educating small and medium-sized company owners since they contribute
significantly to the growth of the country and the economy as a whole. They initiate and promote short-term causes on
business and fund management, as well as subsidize the cost, so that more SME owners may acquire effective business
management techniques.

5.2.4 Recommendation to the SME owners.

SME owners must invest more in their education in order to have the essential abilities to handle their firm finances and
manage their enterprises successfully.

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 REFERENCES.

Borch,K H. (1985) A theory of insurance premium. The Geneva papers on risk and insurance. 10(36), 192 – 208.
https:www.jstor.org/stable/41950519
Borch.K.H. (1985) The buyer of an Insurance Contract Buys Security, and the seller accepts a risk. The premium
charged by the seller must give him adequate competition for the risk bearing service he provides.
Bteisch,C. ( June 25th 2020) A wake up call to expand insurance services to SMEs. SME finance forum
Chodokufa,K.,Chiliya,N. (2014) The relationship between SMEs and insurance providers in Nelson Mandela
Metropolitan Area, South Africa. Mediterranean journal social science. 5.10.5901/mjss.2014.v5n14p84.
Frederick,D., Charles,A.A, Albert,N.K (2020) Insurance uptake among small and medium-sized tourism and hospitality
enterprises in a resource scarce environment. Elsevier public health emergency collection. doi
10.1016/j.tmp.2020.100674
Management magazine (2017) Small and medium sized enterprises pg 3-4
Olya,H.G., Al-ansi,A. (2018) A risk assessment of halal products and services implications for tourism industry.
Tourism management 2018 65: 279 – 291
Schneider,P. (2004) Why should the poor insure: theories of decision making in the context of health insurance? Health
policy and planning. 19(6): 349 – 355
Tversky,A., Daniel,K. (1992) Advances on prospect theory: Cumulative representation of uncertainty. Journal of risk
and uncertainty 5(4): 297-323. doi 10.1007/BF00122574.
Rieger,M.,Wang,M.,& Hens,T. (2017) Estimating Cumulative prospect theory parameter from an international survey.
Theory and decision. 82.4, 567-596.

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 APPENDIX

APPENDIX 1: QUESTIONNAIRE

1. What is your gender?

o Male
o Female

2. What is your level of education?

o University degree
o College diploma
o High school
o Primary

4. What is your age bracket?

o 18-30 years
o 30-45 years
o 45 and above years

5. Do you have any knowledge of insurance and its products?

o Yes
o No

6. Do you have any insurance cover for your business?

o Yes
o No

7. If yes what types of insurance cover do you have?

o Cover against theft
o Cover against fire
o Cover against health
o Cover against long-term disability
o If any other state (specify):
....................................................................................................................................................................................
....................................................................................................................................................................................
............................................................................................................................................................................

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 8. If no then why
....................................................................................................................................................................................
....................................................................................................................................................................................
........................

9. How do you handle risk when they occur?

o Insurance
o Personal savings
o SACCOS
o Loans
o Fund raising
o If any other state (specify)
....................................................................................................................................................................................
....................................................................................................................................................................................
....................................................................................................................................................................................
10. Have you ever been approached by an insurance agent?
o Yes
o No

11. How long have you been in business (business experience)?

o Less than 1 year
o 1-2 years
o 3-5 years
o 6-10 years
o 11 years and above

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