| dc.description.abstract | Small and medium enterprises have been considered as the main engines spurring economic growth and promoting equitable development and in many countries are the driving force of the economies. Financing is necessary to help these small businesses set up and expand their operations, develop new products, and invest in new staff or production facilities .However small businesses find it much harder than larger businesses to obtain financing from banks, capital markets or other suppliers of credit.
This is because they may lack collateral, or have not been in the business long enough to have a proven track record, or may not have audited financial statements like larger businesses. They are usually considered a high risk due to these factors by the microfinance institutions that can give those loans and as a result will be charged very high interest to mitigate against this. In many countries small businesses still report having problems when trying to access loans both from banks and microfmance institutions.
The purpose of this study was to find out the factors influencing access to loans from microfinance institutions in Nairobi, Kenya. The key variables of the literature review that were examined in the study were the microfmance characteristics, the business characteristics, the financial characteristics and lastly the entrepreneur's characteristics. According to the literature review some constraints come into place when small business are looking for loans like the credit rationing behavior of microfmance institutions by requiring collateral or by insisting on audited records before giving loans.
Some of the studies established that some business sectors reported bigger problems when trying to access loans than other sectors. None of the studies looked at the effect that default penalties had as a factor affecting access to loans by small businesses and also the amount applied and the actual amount given to the small businesses. Studies on the effect of availability of loan providers gave mixed results with some studies showing that with the increase of loan providers' the uptake of loans was less while other studies had more loans uptake. Other studies did not have a clear methodology and so the findings may not generalized. Only one study addressed the age of the business as a variable affecting access to loans by small businesses.
The study used a descriptive research design. Simple random sampling rotary method without replacement was used so as to ensure that the same businesses were not interviewed twice. This ensured that there was no bias in the findings and that the results could be generalized to other businesses in the area. Questionnaires were administered randomly to the small businesses in the area covering the four variables that were identified. Chi square statistics was used to find out the relationship between the variables and access to loans.
The chi square results indicated that, education and experience of the entrepreneur, default penalties charged and the business sector are the main determinants of access to credit, all other factors identified in the study did not show any association with access to loans by small businesses. The study recommended publicization of microfinance policy to increase awareness and also capacity building by policy makers through training and support programmes for the small businesses. The study also recommended formation of small business associations to help in networking especially when applying for loans. | en_US |
