Credit rationing by micro finance institutions And its influence on the operations of Small and micro enterprises.

Abstract

This study establishes how MFIs ration credit among MSEs. The hypothesis of the study was that credit rationing influences the operations of MSEs. Savings, business profitability, group membership, location of the business, ability to pay and the frequency of the borrowing were established as some of the criteria used by MFIs to ration credit. Operations of MSEs were identified to include location, design and layout of the equipment, distribution chain, stocking and production capacity. These operations constitute capital and working capital expenditure. The MSEs mainly required credit to increase their stock levels and repair or add their capital equipment. The level of credit in terms of adequacy was related to the level of the operations in terms of expansion using Chisquare. The analysis of the data collected revealed that higher levels of credit received enabled MSEs to meet more of their planned operations. MSEs that received high levels of credit were those with profitable businesses, high savings, had ability to pay, had group guarantee and had received more than one loan from the MFls. The study concluded that a relationship exist between credit rationing by MFls and the operations of MSEs. Thus, MFls should design credit rationing programs that enhance the overall business operations of MSEs from the location of the business to the point at which the product gets to the consumer.