| dc.description.abstract | Despite the liberalization of the financial sector, high interest rate spreads is still an issue of
concern in Kenya. The financial sector plays a dominant role particularly with respect to
mobilization of savings and provision of credit. An analysis of bank interest rate spreads is
therefore central to the understanding of the financial intermediation process and the
macroeconomic environment in which banks operate. This study is motivated by the fact that
although Kenya’s financial sector was liberalized in the early 1990s to allow for market
determination of interest rates, concerns about high interest rate spreads have persisted and
attracted a lot of debate in both public and policy forums. The aim of this study is to establish the
effect of the cost of credit on the financial performance of commercial dairy SMEs in Kiambu
County majority of which are beneficiaries of business development services initiatives in the
region under various USAID funded projects.
Quantitative studies provided this study with data that was expressed in numbers. Because the
data collected in this study was mainly in a numeric form, statistical tests were applied in making
statements about the data. These included descriptive statistics like the mean, median, and
standard deviation, but also included inferential statistics like t-tests, ANOVAs, or multiple
regression correlations (MRC). Statistical analysis helped this study to derive important facts
from research data, including preference trends, differences between groups, and demographics.
Semi structured questionnaires were the main instruments in the study. Closed questions, with
open ended ones and five part Likert Scales were applied to measure specific indicators that were
to be investigated. Specific nature of data collected included; financial performance measures of
commercial dairy small and medium scale enterprises as measured by the return on assets, loan
interests payable per year for the various SMEs, age of the various SMEs surveyed, the sizes of
SMEs, their net incomes and capital injected in the firms inform of debt.
Results show that the cost of credit has direct influence on the financial performance of
commercial dairy SME’s in the county of Kiambu. There is a positive relationship between the
interest payable in the year by SMEs as a result of loans borrowed by SMEs over time, loan
outstanding from financial institutions, the age of commercial dairy SMEs, their sizes and the
values of loans borrowed from financial institutions by commercial dairy SMEs to the financial
performance of these entities , further confirming the positive relationship observed under the
exploratory analysis —that is, the higher the cost of credit the larger the impact on financial
performance of the SMEs. There is need to explore policy options meant to enhance competition
in the industry and measures to break market dominance will be one such option. Efforts to
promote pricing transparency for loans offered by financial services providers with the hope of
stimulating competition in the sector will go a long way in educating the masses on fair financial
product pricing as offered in the market. | en_US |
