| dc.description.abstract | Small and Medium Enterprises (SMEs) play an important role in Kenya’s economy by
contributing to economic growth through job creation, stimulating competition and
innovation. Statistics in previous studies have indicated stagnation in growth and mortality of
about fifty per cent of SMEs within their first two years of operation. In recent years, the
Government of Kenya and Financial institutions have been laying in place measures to ensure
that SMEs profitability is sustained and growth accelerated through policy and access to
credit facilities. This study sought to examine the effect of credit financing on the
profitability of SMEs in Nairobi County.
The study adopted a descriptive research design. The target population was SMEs licensed to
operate in Nairobi County. The study utilized both primary and secondary data. Primary data
was collected through questionnaires that were administered through interviews while
secondary data was obtained from SMEs financial statements for years 2009 to 2013. A total
of 100 questionnaires were administered with 97% response rate being obtained. 3%
accounted for the three firms that did not provide information due to their internal policies.
Data was analysed using Statistical Package for Social Sciences (SPSS) version 21. The
significance of the results was tested at 95% significance level.
The study found that credit financing had positive effect on profitability of SMEs in Nairobi
County with a coefficient of correlation of 0.6029. SMEs industry, legal formation and age
were all found to have positive and significant effect on profitability and that they could
account for 67.19% of changes in SMEs profitability. The main factor hindering SMEs
access to credit financing were found to be high costs of the source of finance and collateral
requirement. The respondents were found to finance their assets substantially using credit.
Access to credit finance by respondents was found to increase through the years from 2009 to
2013.
The research recommended that financial lending institutions to establish less stringent
collateral requirements to increase SMEs access to credit finance. Secondly, SMEs should
consider forming limited liability companies as opposed to partnerships and sole
proprietorships. This is because companies are said to be well structured and professionally
managed hence have a positive image to credit lending institution. In addition, a firm
constituted such that the owners enjoy limited liability are known to pursue more risky
projects that would be more rewarding. | en_US |
