Determinants of Access to Credit Finance by Micro, Small and Medium Enterprises in Nairobi County

Abstract

The study sought to establish the magnitude of the determinants of access to credit finance by micro, small and medium enterprises in Nairobi County. The study identified owner’s financial literacy, access to business support services, ownership structure and market size as the determinant variables while ease of credit access was the dependent variable. The study collected a sample of 179 responses from participants who were able to complete and submit their responses from the questionnaires which were administered through drop and pick later method. The responses represented a response rate of 84.5% which was found adequate for the study. The analysis involved both descriptive and inferential statistics which were found relevant to achieve the objective of the study. In summary, ease of credit access was found to have an overall performance which was below average which implied that MSMEs are struggling to access credit finances in Kenya. Owner’s financial literacy had an average performance implying that majority of MSMEs owners have average financial knowledge which is also a challenge in accessing credit finance. Access to business support services was poor indicating that MSMEs do not easily get access to business support services therefore making it harder to acquire credit finance. The correlation analysis established that both owner’s financial literacy and access to business support services had strong, positive and significant correlations against ease of credit access. Ownership structure had a weak and insignificant positive correlation against ease of credit access while market size indicated a positive and significant impact against ease of credit access. The study as well carried out regression analysis which revealed that the model accounted for 38.2 % of the changes in the dependent variable. The adjusted R square was slightly below R square to indicate that the model consists of elements that are not adding value to the model. Owner’s financial literacy, access to business support services and market size were found to have a positive xii

relationship with ease of credit access while ownership structure had negative impact on ease of credit access. The study therefore, concluded that owner’s financial literacy and access to business support services require improvement as they affect the ease of credit access among MSMEs in Kenya, while ownership structure and market size do not have any significant effect on ease of credit access of MSMEs in Nairobi. The study recommended that the government should carry out nationwide trainings and workshops to help improve on financial literacy. The study also recommended that the business owners should avoid small term loans, to finance their business operations and at the same time the study recommended them to increase operations that would help them grow their assets (size).