Factors That Influence Loan Defaulting by Sme Owners in Kenya: a Study of SMEs Within Thika Township in Kiambu County
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Date
2015-11Author
Kiraithe, Peterson K
Type
ThesisLanguage
enMetadata
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The study focused on the factors influencing loan defaulting by the SME owners operating
within Thika Township of Kiambu County. The SMEs play a pivotal role in development and
sustenance of world’s economy, but not without many challenges that hinder their
development. It focused on the type of loan collateral, purpose/intention of starting the SME,
the need for achievement in the SME venture, the nature/type of the SME, the diversion of
loan, and mode of loan repayment. The descriptive research design was adopted, where 50
questionnaires were administered to SME owners and detailed discussions of the questions
conducted with 10 key informants in the SME sector. The probability and non-probability
sampling techniques were used in the study. The data was analysed using descriptive
techniques and the findings presented using graphs, tabulations and cross tabulations and
percentages.
The study found that majority of the respondents were male with college/university level of
education. It also found that majority of the SME entities had been in operation for four years
or less while the SME owner’s ability to manage a loan was enhanced by education, skills and
experience. Majority of the SMEs are accessing loan services from the MFIs and more than
half of them have ever defaulted on their loan contract. The direct cash deposits repayment
mode was used by majority, with monthly repayment intervals. The majority of the
respondents hold that the MFIs loaning services to SMEs have good future prospects. A
majority of the SME owners disagree that the purpose of starting an SME entity could
influence loan defaulting while majority of the key informants think it could. The study found
that lack of need for achievement in business and diversion of loan funds influence SME
owners to default on their loans while the type/nature of business and mode of loan repayment
was found to be a less influencing factor of loan defaulting.
The study recommends that the SME owners learn how to plough their profits back into the
business to increase their operating capital in order to grow their entities. In addition, SME
owners should conduct sound business research before starting their entities. The study
concluded that the SME sector is a fertile ground for investment not just for governments, but
SME owners and the MFIs as well.