Small scale business loan repayment performance in Kenya: a study in the East lands regions of Nairobi
Ochillo, Margaret P A
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A large number of Kenya's total population earns their living from income received from small scale businesses. Businesses depend mainly on stock of goods to be sold. These, however, are not enough to expand businesses. Many small scale entrepreneurs are not able to expand businesses due to their meager incomes. Provision of credit is one of the major strategies being used to speed up business expansion and development in Kenya's small scale business sector. One of the setbacks of the small scale business credit programs has been poor loan repayment. The major concern of this study was to analyze the factors affecting loan repayment performance by small scale entrepreneurs with the aim of proposing measures that can help in improving small scale business credit repayment performance. Cross section data collected from an urban area in Kenya was analyzed by probit regression, a method which uses Maximum Likelihood estimation to compute values of model parameters. loan repayment default is the dependent variable while the independent variables include age, education, loan diversion, number of dependants, business diversification, loan administration, attitude of the entrepreneurs towards loan repayment and business performance. The main findings of the study are that the ages of the entrepreneurs, loan administration, attitude of the entrepreneurs towards loan repayment and business performance have statistically significant influence on loan repayment. The study further found that lateness in issuing loans and inadequate supervision and technical advice on good business practice affect loan repayment. Loan repayment by small scale entrepreneurs can be improved through use of credit on its intended purpose, business diversification (concentration by entrepreneurs on business activities which contribute highly towards income generation), changing the attitude of entrepreneurs towards loan repayment and expanding the market for products of SMEs. Timely loan processing and adequate loan supervision can help reduce default rates.