Challenges in Financing Small & Medium Enterprises (Smes) in Kenya the Experience of Fina Bank Kenya Limited
Abstract
The study was seeking to determine the challenges faced in the process of financing
SMEs in Kenya, examine how commercial banks with specific reference to Fina Bank
are trying to address these challenges and to examine the banking needs of Small and
Medium Enterprise in Kenya. The study was a case study and the unit of study was
Fina Bank (K) Limited and therefore, no sample in the study. Primary data was
collected using structured questionnaires while the published financial statements for
the bank were the main source of secondary data. The questionnaires were divided
into three sections; section A addressed the background information on Fina bank;
section B addressed SME products offered by the bank while section C addressed the
challenges commercial banks face in the process of extending finance to SMEs.
Out of 19 questionnaires distributed only 15 were filled and returned. This
represented a response rate of 79% with a non-response rate of 21%. This was a good
representation from the respondents which have resulted into conclusive research
findings. Detailed information on bank's operation especially on the guarantee
schemes, sources of funds and the total sum of SME lending book could not be
availed due to bank's confidentiality policy. These were some of the challenges faced
while collecting data in the field. An empirical survey should be done to include all of
the 45 registered commercial banks in Kenya which might produce representative
results. Small business enterprises financing faces various challenges in the process of
accessing credit from commercial banks in Kenya.
Major challenges faced by commercial banks as revealed by the study in the process
of lending to small businesses are mainly: lack of banking/credit history to allow them
access the funds easily from commercial banks, they have no valuable collateral to act
as security for their financing, non-registration of businesses; lack of financial
statements required for financing and lack of keeping proper books of accounts. All
these issues are challenges impeding on financing the small businesses by commercial
banks. Hence they resort to informal sources of financing which proves to be
expensive and not cash flow projected.
The research revealed that 33% of SME customers preferred business loans with 60%
of the applicants goes for loans rangiog between Kshs. 500,000 and Kshs. 1 Million.
Most SMEs do not submit mandatory documents required for financing by
commercial banks. 100% of SMEs submit balance sheets, 66.7% cash flow projections while 53.3% submits certificates of registration/incorporation. This
indicates a bigger challenge the commercial banks face in financing this sector.
Securities provided are also weak as 22% provides chattels mortgage and inventory
hypothecation while 4% provide housing as their collateral.
The study recommends that a further research can also be done on the challenges
facing Small and Medium Enterprises in getting financing from commercial banks in
Kenya and a more detailed research could also be done to look into different financing
strategies adopted by commercial banks in serving the SME sector.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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