Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.5, No.9, 2014 140 The Impact of Attitudes towards Saving, Borrowing and Investment on the Capital Accumulation Process in Kenya: An Application of the Theory of Planned Behavior Sifunjo E. Kisaka 1* 1. School of Business, University of Nairobi, P.O. Box 30197 – 00100, Nairobi, KENYA. *E-mail of corresponding author: sifunjo.kisaka@gmail.com Abstract The role of attitudes of the entrepreneurs toward saving, investment and borrowing to invest is an important factor in economic development. This study examined how attitude influences the amount and form of funds saved, borrowed and invested by Micro and Small Entreprises (MSEs) in Kenya. It also examined the instruments used for saving, the sources of finance and how these combine to influence the capital accumulation process and poverty alleviation efforts. A survey of MSEs in Ongata Rongai Township showed that attitudes of MSEs influenced their saving, investing and borrowing behavior. This relationship is positive and significant. The MSEs prefer saving with banks but not Microfinance Institutions (MFIs) and other traditional instruments. The MSEs have a positive attitude toward saving, borrowing and investment. However, they are noncommittal to borrowing from the formal financial system. Those who borrow prefer banks to MFIs. This is attributed to the high interest rates, long procedures for obtaining loans, and the rent seeking behaviour of some officers of the MFIs. The MSEs rely mainly on their savings as a source of finance for investment. Reliance on internal finance means that MSEs must first accumulate savings before investing. Since the amounts saved by most MSEs are small and credit is limited, the amount invested and the returns on investment are also small. Thus the capital accumulation process is long and arduous. This could partly explain why we seem to be loosing the war against poverty in Kenya. Therefore any form of intervention to alleviate poverty through microfinance must seriously consider the attitudes and intentions of those being targeted. Keywords: Attitudes, Micro and Small Entreprises, Intentions, Saving, Investment, Borrowing, Capital Accumulation, Theory of Reasoned Action, Theory of Planned Behavior, Subjective Norms, Beliefs, Significant Others, Intention. 1. Introduction Economists consider the attitude of entrepreneurs toward risks and risk-taking as one of the important factors that influence the rate of economic growth and development in any economy. (Smith, 1776; Weber, 1958; Banfield, 1958; Landes, 1998; Tabellini, 2003; Chua, 2004; Guiso, Sapienza and Zingales, 2004; Clark, 2007;). For example Kaldor (1934) argued that the transformation of the traditional structures of production by entrepreneurs who seek risks and profit is crucial to economic development. Furthermore, he contended that the emergence of a class of entrepreneurs is the product of social factors and cannot be attributed to any economic or technical factors. Attitude is defined as a psychological tendency that is expressed by evaluating a particular entity with some degree of favour or disfavor (Eagly and Chaiken, 1993). An attitude has the cognitive, affective and behavioral components. This view of attitudes has a direct impact on the way people who hold them behave toward specific attitude objects. For instance, MSEs with positive attitudes toward credit will tend to borrow more than those with negative attitudes towards debt. This study examined the role of the entrepreneur’s attitudes in the capital accumulation process. Attitudes would influence saving, borrowing and investment. When MSEs rely solely on their savings to finance investments it takes a long time to accumulate appreciable amounts of capital. However, by borrowing funds from credit institutions, MSEs can quickly accumulate capital. This is because they can improve their incomes and wealth through undertaking larger and more viable investments. Consequently, this reduces the incidence of poverty in the society. The objective of this study is to inquire into the attitudes of MSEs toward saving, borrowing and investment and how this affects the capital accumulation process. Several studies have examined the factors that determine saving and investment yet the role of attitudes have not been explored. The study also examined the forms of saving used by MSEs. Knowledge of the instruments preferred for saving, borrowing and investment helps to improve policy making as well methods of intervention in this sector. This paper is organized as follows. Section 1is the introduction, which presents the role of saving, investment, and credit in the capital accumulation process. Section 2 discusses the underlying theory on the impact of attitudes on behaviors. In section 3 the research methodology is presented. The results of the study are discussed in section 4 while section 5 provides the conclusions and section six discusses policy implications.