Demand side factors and access to external finance by small and medium manufacturing enterprises in Nairobi, Kenya

Abstract

This study investigates how demand-side factors affect access to external finance by small and medium manufacturing enterprises (SMMEs) in Nairobi, Kenya. The demand-side factors considered in the study are firm characteristics, financial management practices and entrepreneur characteristics. The study employs an exploratory survey design utilizing quantitative methods in data collection and analysis. Data is analyzed using descriptive and inferential statistics. Logistic regression is used to test the relationship between demand-side factors and access to external finance because of the dichotomous nature of the dependent variable. The findings of the study show that some of the demand-side factors significantly influence access to external finance. These factors include entrepreneur’s networks, ethnic orientation, firm growth and earnings volatility. The study recommends further probing of the role of good financial management practices such as preparation and usage of financial information on access to external finance in diverse settings and industries. It is also important for entrepreneurs and providers of the finances to establish and support sustainable networks that guarantee enterprise growth. Though ethnic orientation influence access to external finance, policy efforts should be put in place to ensure there is efficiency in the market for external financing and certain entrepreneurs are not disenfranchised on the basis of their ethnic background. As firm growth also influences access to finance, managers of the SMMEs should endeavor to attain steady and predictable earnings growth with minimal deviations. Such efforts would help minimize financial constraints caused when external funds are inaccessible.