Relationship Between Borrowing Costs and Uptake of Mobile Loans Among Small and Micro Enterprises in Gikomba Market in Nairobi, Kenya

Abstract

The subject of mobile loans as an alternative source of funding for small and micro enterprises has become increasingly important to various stakeholders as more and more lending platforms continue to emerge and present a challenge on the regulatory front. This study was aimed at establishing the relationship between the borrowing costs of these loans and the rate of their uptake among small and micro enterprises. The objective of this study was to determine the relationship between cost of borrowing and mobile loans uptake by SMEs in Gikomba market in Nairobi. Primary data was obtained from the business owners of the enterprises studied through the specially designed data collection tool. The data was analysed using Microsoft Excel 2013 and SPSS version 20.0.0.0. Regression and correlation tests were conducted on the data to determine the nature and extent of the relationship between the independent variable (cost of borrowing) and dependent variable (uptake of loans). The study results showed that interest rate charged, processing fees, late payment charges have a positive statistically significant effect on amounts borrowed. According to the findings, increase in interest rates, processing fees and late payment charges increases uptake of mobile loans amongst the traders in Gikomba market. From the study results showing that higher borrowing rates have a positive statistically significant effect on amounts borrowed, this study recommends further study on the health of the conventional credit sector and its relationship with the uptake of mobile loans.