Capital Sources for Small and Medium Enterprises in Somalia and the Effect on Their Performance: A Case Study of Mogadishu Based Businesses

Abstract

The study intended to determine the source of capital for small and medium enterprises in Somalia, and how it affects the performance of the SMEs. The study used venture capital, saved Capital, family and friend capital, angle investor capital, interest-charging capital as the independent variable, while performance of SMEs was the dependent variable. The sample of the study was drawn from the population of small businesses in Mogadishu, Somalia. Cochran’s formula was used to calculate the sample size. The standard deviation of the study was 0.5 with confidence level of 95%. The Z value of 5% confidence level is 1.96 therefore, (1.96)2 (0.5) (0.5) / (0.05)2 = 385. Pearson’s Product Moment (PPM) was used to measure the strength and the direction of the relationships between each of the dimensions of factors affecting the performance of small businesses. Linear regression was also used to determine the relationship between the independent and dependent variables. The result of the study indicated strong significant positive relationship between saved capital and business performance, 0.421 with p-value of less than 0.05. Angle investors have significant relationship with business performance, 0.385 with p-value of less than 0.05. There is no significant correlation between venture capital, interest charging capital, and the capital from family and friends against business performance.