Access to Credit and Performance of Small and Medium Enterprises in Turbo Sub County, Kenya
Sakwa, Margaret A
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Access to credit is a prerequisite for growth and prosperity of any firm within the economy. Access to credit improves firms’ performance, facilitate market entry, growth of companies and risk reduction, promotes innovation and entrepreneurial activity. Small and medium enterprises play an important role of economic growth and on a macro level bring about employment within the economy. SMEs particularly the smaller ones have been unable to access credit to lubricate their businesses due to their limited track record, limited acceptable collateral security, and inadequate financial statements and business plans. This has hence attracted the attention of scholars and policy makers. However, the scholars who have done studies on this sector of the economy disagree on the nature of relationship between access to credit and performance of these firms. The purpose of this study was therefore to determine access to credit and performance of small and medium enterprises in Turbo, Sub County, Kenya. This purpose was achieved using the following objectives; to determine the influence of cost of credit and performance of SMEs, to establish the influence of firm characteristics and performance of SMEs, to establish the influence of firm size and performance of SMEs and to assess the influence of collateral security and performance of SMEs in Turbo sub county, Kenya. This was anchored on the bank lending channel theory which is of the view that the representative firm must obtain credit to finance their working capital; labor costs prior to production and sale of output supported by the credit access theory which is of the view that information asymmetry is the main cause of financial market malfunctioning in developing economies. The study used a sample of 340 from a population of 2,901 entrepreneurs using both descriptive and correlational research design. Both closed and open ended questionnaires were administered to the business owners for obtaining the relevant data. The study found a Cronbach’s alpha of 0.906(90.6%) implying that the research instruments were reliable and hence valid for conducting the survey. From the regression results, the study concluded that firm size had a negative but significant influence on access to credit hence performance of SMEs. Small firms had difficulties in accessing credit as compared to their larger counterparts. Collateral security had a positive and significant influence on access to credit hence performance of SMEs. Firms with collateral accessed loans easily as opposed to those with none. Firm characteristics had a negative insignificant influence on access to credit hence performance. Firms with less competent managers, poor credit history and had been in existence for less than two years could not easily access credit. Cost of credit had a positive but insignificant influence on access to credit. SMEs were easily lured to take credit from lenders whose cost of credit was lower and hence improved the performance of their firms. The researcher recommends that financial institutions should work on publicity and other modes of information dissemination. Terms and condition of their loan products and services should be custom tailored to meet the needs of their clientele. The research hopes that the findings of this study will contribute significantly to the existing literature on access to credit and performance of SMEs.
University of Nairobi
RightsAttribution-NonCommercial-NoDerivs 3.0 United States
- Faculty of Education (FEd) 
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