FINANCIAL RISK MANAGEMENT AND PROFITABILITY OF THE TOP 100 SMES IN KENYA
Abstract
Purpose of the study: The study examined the effect of financial risk management on the profitability of the top 100 SMEs in Kenya between 2018 and 2023.
Methodology: The study employed an explanatory research design. The population comprised Top 100 SMEs between 2018 and 2023, with a census of 40 consistently listed firms selected for analysis. Data were collected through questionnaires and audited financial statements. Analysis was conducted using SPSS.
Findings: The study revealed that financial risk management significantly affected profitability (β = 0.600, R² = 0.16, p = 0.013), explaining 16% of profitability variance. The analysis showed that 94.6% of firms were exposed to various financial risks including market, credit, liquidity, and operational risks, with 92% conducting regular risk assessments. However, insurance coverage remained inconsistent across the study period, achieving adequate levels only in 2019, 2022, and 2023. Most SMEs (78%) conducted annual risk reviews, though more frequent monitoring was less common. The profitability trend analysis revealed fluctuating patterns, with years 2020, 2022, and 2023 recording healthy profit margins while 2018, 2019, and 2021 showed weaker performance.
Conclusion: The study concludes that financial risk management significantly influences profitability among Kenya's top-performing SMEs.
Recommendations: The study recommends that SME owners should adopt comprehensive risk management frameworks with continuous monitoring systems, strengthen insurance coverage, and invest in capacity building through targeted training programs. Policymakers should develop support programs providing subsidized access to risk management advisory services, while financial institutions should create products that reward strong risk management practices with favorable lending terms.
Keywords: Financial risk management, profitability, top 100 SMES, Kenya
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