Trade finance services offered by banks to the exporters in Kenya: the case of small scale exporters in Nairobi
Abstract
This study focused on the trade finance services that are provided by banks to
small-scale exporters in Kenya. It sought to find out how these services vary
with the various export sectors of the economy i.e. manufacturing, floriculture
and horticulture.
The structure of Kenya's economy has generally remained the same over the
last five years (1995-2000). The economy has remained predominately
agricultural, with this sector accounting for 25% of total Gross Domestic
Product. Other key sectors in terms of contribution to the GDP are
manufacturing 13%, trade, restaurant and hotels 12%, finance, insurance and
business services 10% and transport, storage and communications 6% over
this period.
Propositions in literature on trade development state that there is strong
correlation between exports and growth in GDP. Exports are therefore an
engine of economic growth in developing countries. Needless to say, the
performance of the trade sector, as measured by the trade deficit, has been
worsening over the last five' years. The challenge is how to address trade
growth since exports playa vital role in Kenya's economic development as
stated in the Sessional paper No.1 of 1986 on Economic Management for
renewed Growth. Trade is, therefore, one of the key strategies that are critical
to the resuscitation of the economy.
The service industry is a crucial part of our economy country in terms of its
contribution to economic growth and development. The banking sector, which
is part of the services sector,provides services of tangible worth to its clients.
These services include products, which pose various unique characteristics
making their marketing difficult as compared to the marketing of physlcal
commodities.
The study employed the sample survey method of collecting data. Data
collection was done using two- designed questionnaires, which were dropped
and picked at the respondents' premises. Some interviews were also carried
out. Twenty banks and thirty exporters were sampled. Descriptive statistics
and the Spearman Rank Correlation Coefficient method of analysis were used
to identify and prioritise the trade finance services that are crucial or preferred
by small-scale exporters and to examine whether the trade finance services
vary with types of export business or sector. Factor analysis was also done in
order to find out what factor affect the provision and receipt of trade finance
services.
Research results -indicate that most of the small-scale exporting firms are
African founded and are therefore wholly local. Most of the small-scale
exporters have a high knowledge of the trade finance services provided by the
banks and the services are of great importance in the operations of the smallscale
export businesses. The trade finance services provided to the small-scale
exporters: Letters of Credit, Pre Shipment Financing, Export Guarantee
Insurance, Post Shipment Financing and Bills of exchange.
The Spearman Rank Correlation Coefficient results indicate that the trade
finance services vary with the export sectors. There is a moderate positive
correlation between the trade finance services and the manufacturing,
agriculture, floriculture and horticulture sectors.
The highest positive correlation is between the trade finance services and the
horticulture sector. This is then followed by the manufacturing, agriculture
and floriculture sectors.
The small-scale exporters and banks ranked Letters of Credit as the most
crucial or preferred trade finance service.
There is a low positive correlation in ranking of the trade finance services by
the exporters and the banks.
Other factors that have impacted on exporters and banks business include
freeing of interest rates in the Kenyan economy, increased global competition,
cumbersome banking rules and procedures, high interest rates and demand for
collateral.
Results from the research indicate that the small-scale exporters and banks
would like the government to get more involved in the provision of trade
credit by providing policies on more clearer banking procedures,
establishment of supportive small business exporting institutions. An
important factor that leads to many small-scale exporters not be given trade
credit is lack of collateral.
The results indicate that the small-scale exporters consider Lack of
understanding between the banks, government and quasi government agencies
resulting from lack of clear policies, procedures and regulations a major factor
that contributes to the inadequate provision and receipt of trade finance
services. Another major factor is Ignorance and lack of knowledge on the
importance of export needs has affected the provision of trade credit.
Citation
Masters thesis University of Nairobi (2001)Publisher
University of Nairobi. Faculty of Commerce
Description
Degree of Masters in Business Administration