Effect of Risk Management Techniques on Financial Performance of Small and Medium Enterprises in Elgeyo Marakwet County, Kenya

Risk management techniques are systematic approaches that organizations use to identify, assess, prioritize and address potential risks that may affect their business objectives. Financial performance is a crucial indicator that determines the success and sustainability of businesses including small and medium enterprises (SMEs). The study aimed to determined risk management techniques and financial performance of SMEs in Elgeyo Marakwet County, Kenya. The study's objective was to assess the influence of risk acceptance, risk avoidance, risk retention, and risk transfer on financial performance of SMEs. The study was anchored by Modern Portfolio Theory, Enterprise Risk Management Framework, and Prospect Theory. The study employed a descriptive survey research design. Elgeyo Marakwet County was selected because it represents rural Kenya's SME environment accurately. The study target population was 258 registered SMEs in Elgeyo Marakwet County. Using Yamane's (1967) formula, the sample size was calculated as 157 SMEs from manufacturing, trading, and service sectors. A total of 137 SMEs participated in the study. SME owners and managers were surveyed using structured questionnaires. Descriptive statistics and Multiple Linear Regression Analysis were used to analyze the data. According to the research regression coefficient findings, risk transfer was positively and significantly related to financial performance (β = 0.407, p=0.000), followed by risk acceptance (β = 0.266, p=0.000), risk avoidance (β = 0.219, p=0.000), and risk retention (β = 0.187, p=0.000). To enhance financial performance, the study recommended that SMEs adopt integrated risk management systems that encompass all four techniques with emphasis on risk transfer strategies such as insurance and contractual agreements. Keywords: Risk Management Techniques, Financial Performance, Small and Medium Enterprises, Elgeyo Marakwet County, Kenya