| dc.description.abstract | Lack of access to finance has been identified as a major
constraint on the ability of MSEs in Kenya to fulfil their
potential for dynamic growth. This study investigates the high
propensi ty of MSEs to identify lack of access to finance as
their primary constraint and the view of banks that MSEs have
low demand for loans, in an attempt to come up with
recommendations to enhance credit accessibility to MSEs.
Since 1991, financial liberalisation has been pursued initially
as part of the structural adjustment reforms and subsequently
under the financial sector adjustment program. These included
issues such as policies of direct controls over interest rates
and the allocation of credit, the historical orientation of
banks towards import-export trade and large firms, and the lack
of competition among banks. Although financial liberalisation
has created some necessary conditions for increased MSEs
lending, the effect so far has been limited.
Oketch ~. al. (1995), notes that there are 105 formal
institutions with MSEs support packages in the country. These
assistance programs are diverse in terms of their orientation
(finance, training, marketing, e.t.c.), geographical coverage
(rural vs urban, national vs regional), intensity (amount of
support) and targeted population groups (women, men, youth,
sectors, e.t.c.). As MSEs continue to increase, it is important
for policy makers and planners to have an understanding of what
percentage of MSEs are being reached by any form of assistance.
To help shed light on these issues, the survey collected
information on access to financial assistance.
The study revealed that despite the loans applications put
forward, only a small minority of MSEs have benefitted from any
form of credit, and most entrepreneurs rely primarily or
exclusively on own savings to finance the enterprise. This has
been due to high interest rates charged on loans, lack of
adequate information about loan facilities and lack of
collaterals required to back the loans. Banks are usually not .
willing to lend out money to MSEs because of a (supposed) lack
of collateral, small loans are relatively expensive to
administer and therefore can only be extended in return for
higher rates of interest.
The study suggests measures that banks and financial
institutions could adopt to overcome the problems of high
transaction costs and risks in MSEs lending, for example by
.
settln~ tip ~redlt reference bureau to provide information on
clientele creditworthiness and facilitate easier processing of
loan application.
The study found out that the financial assistance agencies are
concerned about security of tenure in advancing loans. To gauge
the extent of tenure security the study found out that only
about 37 percent of the entrepreneurs had some form of tenure
securi ty, while the rest face the risk of displacement. The
study recommends the need to plan MSEs sites to improve their
tenure security and access to loans.
Nevertheless, the evidence suggests that exploitation of highly
profitable opportunities by MSEs could be accelerated if MSEs
entrepreneurs had greater access to external financing. | en |
