The effect of bank credit on financial performance of small and medium enterprises in Dagoreti north constituency
Abstract
The Small and Medium size enterprises present the most dynamic economic foundation for
growth, income and employment creation. However, this vital sector has been greatly affected by
lack of credit by financial institutions in Kenya. The main objective of the study is to assess the
impact of bank credit on the financial performance of Small and Medium Enterprises. The
researcher employed descriptive research design. Data was collected based on the objectives and
questionnaires were distributed to 40 respondents. Descriptive statistics such as frequency
distribution, Percentages, variations and measures of central tendency were used to summarize
basic features of the data in the study. Inferential statistics were used to infer the sample results
to the population. The study established that availability of capital resources greatly affects the
financial performance as well as investment levels among SMEs forcing investors and potential
investors to depend on own savings and funds from friends and relatives. Also it is well
established that the size of the firm influence its ability to access credit from financiers. The
ability of small and medium enterprises to access credit was found to be a significant ingredient
towards SMEs growth. This could be out of the fact that unlike established companies, most
SMEs do not have goodwill with banks and therefore, their access to financing is limited due to
lack of collateral and previous history. The study recommends for establishment of policies to
enable SMEs access financing without any hindrance. This will deal with the key issues
hindering SMEs access to credit, namely; high cost of finance and availability of required
collateral. The study recommends for the establishment of a fund that would be advancing
subsidized credit to SMEs this will deal with the issues hindering SMEs access to credit for
SMEs. Further proper legal framework should be put in place in order to help small and medium
enterprises raise more capital for growth.
Publisher
University of Nairobi
Description
Masters