Relationship between credit accessibility and growth of small and medium size enterprises in Nairobi county, Kenya
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.
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