Relationship Between Credit Accessibility and Growth of Small and Medium Size Enterprises in Nairobi County, Kenya
Abstract
This study intended to investigate how credit accessibility influenced growth of small
and medium size enterprises in Nairobi County, Kenya. In recent times small business
have taken centre stage as the main drivers of economic growth in most countries.
These enterprises have been observed to be in the fore front in job creation and
wealth. Despite being at the fore front of economic growth access to credit has been a
major challenge that has obstructed their growth. The study objectives were to
establish how credit accessibility affected growth of SMEs in Kenya and to establish
the challenges and constraints facing SMEs in accessing credit. In this study, the
population of interest included SMEs that operated within Nairobi County. There
were 30252 small and medium size enterprises that operated within Nairobi City
County out of which a sample of 379 was used in the study. Primary data was
collected from these sample enterprises and analysed using descriptive statistics.
Regression and correlation analysis were applied to show the relationship between
variables. The study revealed that the majority of SMEs in Nairobi County were not
performing as expected due to lack of access to credit. Credit accessibility was found
to influence the growth of small enterprises. Particularly high rates of interest
negatively influenced the growth of small business in Kenya. The findings further
indicated that term to maturity, uncertainty about loan amount, high interest rates,
mismatch of funds and undue pressure for repayment had a large influence on the
SMEs choice of credit facilities. The study results also showed that aspects of lending
such as credit history, asset base, availability of collateral, delayed payment by
debtors and irregular cash flows influenced the SMEs choice of credit facility. The
result showed that lack of information, lack of awareness of credit facilities, loan
ineligibility, poor credit history and lack of collateral/guarantors hindered SMEs from
accessing credit facilities. The high interest rates and high collateral requirements
among banks make it very difficult for SMEs to receive credit. SMEs typically lack
sufficient collateral or personal guarantors to pledge against formal loans, or they are
unfamiliar with the bureaucratic procedures of accessing credit. Financial capital is
the catalyst for firm expansion. Hence, insufficient access to it is evidently harmful to
overall economic growth. Financial constraints slow down capital accumulation,
impede productivity improvements and increase the time it takes entrepreneurs to
reach their potential. Based on the study findings recommendations are; financial
institutions should consider revising their policies on interest rate charged, credit
policies and appraisal techniques and limitation on the amount of credit granted to
SMEs. The study also recommended that financial institutions should consider
reducing or waiving credit appraisal costs and cost charged on late payment to
increase SMEs accessibility to credit. The study also recommended that to increase
SMEs accessibility to credit loan limit policies should be reconsidered or harmonized
to accommodate the needs of SMEs. Stakeholders in the different sectors should also
intervene to ensure that SMEs have access to financial services to enable them to
contribute to development.
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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