Effect of Capital Adequacy and Leadership Styles in Steering Small and Medium Enterprises to Growth

Abstract

Small and Medium enterprises have been acknowledged by many countries worldwide as the engine for economic growth. As a result, a lot of studies have been conducted to into issues affecting their growth so as to cushion them and spur their competitiveness. While some factors have been identified such as capital adequacy and leadership styles, there is need for more research regarding their significant effects on SME growth particularly in the interior design industry thus the necessity for this study. Specifically, the study looked at the effect of leadership styles on the growth of SMEs in the interior design industry in Nairobi County, as well as the relationship between capital adequacy and the growth of SMEs in the interior design industry in Nairobi County. A descriptive research design was applied to implement the study targeting a total population of 174 firms. This study employed stratified random sampling technique to categorize the firms in to three different sections of interior design firms, interior decoration firms and architectural firms as they show different heterogeneous characteristics. Then from each section 10% was selected from the population using simple random sampling. Questionnaires were the main primary data collection instruments. A pilot study was used to confirm content validity of the data gathering instruments while the Cronbach’s coefficient alpha was used to establish reliability. Quantitative and qualitative data collected was analyzed using descriptive statistics and expressed as percentages and frequencies. Chi square test was conducted to test the relationship between the independent and dependent variables. Besides, regression analysis was done to determine the extent to which the independent variables influence the SME growth. Inferential statistics was tested at 95% confidence level and p-value of 0.05. Data is presented in tables as they offer a better picture of results. The study observed that Interior Design SMEs in Nairobi County leadership style involves a lot of supervisory procedures as well as frequent communication which hinders output. As a result, the study recommended that employees should be involved in the process of decision-making. They do not require close supervision nor punishment for them to achieve organizational objectives. However, providing guidance without pressure is required. On a second note, the study observed that SMEs growth in Nairobi County is largely hindered by financial constraints. They are faced with short term and long-term financing shortage to run their operations. They also have restricted access to bank loans to run effectively. As a result, the study recommends that SMEs should establish a cordial relationship with Banks to improve their lending relationship.  Further, the SMEs can pursue alternative sources of funding such as table banking or angel capital. Key terms: Capital Adequacy, Interior Design Industry, Leadership Styles, Small and Medium Enterprise Growth, Nairobi County Kenya