A survey of lending technologies adopted by Commercial Banks in Kenya to mitigate small and medium enterprises opacity problem
Abstract
As the Kenyan economy grows, the need of credit for small business expansion grows
likewise. For a long time, commercial banks have been lending to very few individuals
and established businesses while sidelining the rest due to perceived risks in small
business financing.
The objective of this census study was to establish the lending technologies adopted by the commercial banks when advancing credit to informationally opaque small, businesses
and to investigate the factors that influence the choice of the technologies. Data was
collected with the help of a self administered structured questionnaire. A response rate of
77% was achieved out of the targeted forty four respondents, the data was analyzed with
the help of descriptive statistics, such as frequencies and percentages.
The findings of the study reveal that there are four lending technologies in the Kenyan
small business lending niche that are not applied exclusively as 92% of the commercial
banks practice asset based lending, 88% have relationship lending, 83% rely on financial
statement lending and 41% apply credit scoring. The predominance of transaction based
lending is attributed to the averse nature of commercial banks towards financing small
businesses and their preference for temporally shorter relationships with the small
business clientele. Of the banks that practice relationship lending, a majority of 87% are
foreign promoted commercial banks which points to their efforts to gather soft
information about clientele over time.
In view of these findings, the author recommends that: There should be financial
innovation by lending institutions for developing alternative collateral arrangements for
small businesses that are unable to show accumulated net worth in tangible assets since
asset based lending is highly adopted by commercial banks in Kenya. Further, there is
need to enhance awareness programmes on basic financial statement processing and
reporting requirements for the small business owners who may not be sophisticated in
financial know how and are disadvantaged in accessing debt capital.
Citation
A Management Research Project Report Submitted in Partial Fulfillment for the Requirements of the Degree of Masters of Business Administration (MBA), School Of Business, University Of NairobiPublisher
Business Administration