challenges facing micro and small enterprises in accessing credit facilities in kangemi harambee...

8/10/2019 Challenges Facing Micro and Small Enterprises in Accessing Credit Facilities in Kangemi Harambee Market in Nairo

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International Journal of Scientific and Research Publications, Volume 4, Issue 12, December 2014 1

ISSN 2250!15!

Challenges Facing Micro and Small Enterprises in

Accessing Credit Facilities in Kangemi Harambee

Market in Nairobi City County, Kenya

JANE ANNE AN!"# !#CH"K#$, %&' A!NES NJE&"(, )N%A*" #*&AH#M +#M*A

"aster of Science in #ntre$reneurshi$, Jomo %en&atta 'ni(ersit& of )*riculture and +echnolo*&, Nairobi am$us, %en&a1

Pro-ect Su$er(isor, Jomo %en&atta 'ni(ersit& of )*riculture and +echnolo*&, %en&a2

Research .ello/ and PhD .inance andidate J%')+, ecturer "ount %en&a 'ni(ersit&, ar*eisa am$us Somaliland!

tirimba5*mail3com!

A*S+&AC+-"icro and Small "S#s $la& an im$ortant economic role in man& countries3 In %en&a, for e6am$le the "S# sector

contributes o(er 50 $er cent of ne/ -obs created but des$ite their si*nificance3 +he $ur$ose of this stud& /as to determine the

challen*es facin* "icro and Small #nter$rises in accessin* credit facilities in %an*emi arambee "ar7et in Nairobi it& ount&,%en&a3 +he stud& used descri$ti(e research desi*n3 +he stud& tar*eted a sam$le of 241 from a tar*et $o$ulation of 858 "S#s located

in %an*emi arambee mar7et3 Stratified random sam$lin* /as utili9ed in selectin* the res$ondents for the stud&3 Primar& data /as

collected from the stud& res$ondents usin* :uestionnaires /hich /ereselfadministered and others researcher administered3 Data /asanal&9ed descri$ti(el& and $resented throu*h fi*ures, tables, $ercenta*es, bar charts, arithmetic means, standard de(iations, $ie charts

and tabulation to sho/ differences in fre:uencies3 Statistical Pac7a*e for Social Sciences SPSS (ersion 2130 /as used to aid incodin*, entr& and anal&sis of :uantitati(e data obtained from the closed ended :uestions3 +he stud& re(ealed that the 7e& challen*es

hinderin* micro and small enter$rises from accessin* credit facilities to be hi*h cost of re$a&ment, strict collateral re:uirements,un/illin*ness of $eo$le to act as *uarantors, hi*h credit facilities; $rocessin* fees and short re$a&ment $eriod3 +herefore it is

recommended that financial institutions set more fle6ible, affordable and attracti(e re:uirements in financin* micro and small

enter$rises3

KE. )&%S- "icro and Small #nter$rises, credit facilities, financial institutions

1. IN+R


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+he catal&tic roles of micro and cotta*e businesses ha(e been dis$la&ed in man& countries of the /orld such as "ala&sia, Ja$an, South

%orea, Fambia, and India amon* other countries3 +he& contribute substantiall& to the @ross Domestic Production @DP, e6$ortearnin*s and em$lo&ment o$$ortunities of these countries3 "S#s ha(e been /idel& ac7no/led*ed as the s$rin*board for sustainable

economic de(elo$ment orld =an7 sho/ that access to finance is

$ercei(ed as one of the main obstacles to doin* business3 ) number of studies ha(e sho/n that financin* is a *reater obstacle for"S#s than it is for lar*e firms, $articularl& in the de(elo$in* /orld, and that access to finance ad(ersel& affect the *ro/th of the "S#

sector more than that of lar*e com$anies Schiffer, ?>eder, 2001G =ec7, +3, Demir*K%unt, ?"a7simo(ic, 20053 It is, therefore,

unsur$risin* that the international de(elo$ment communit& has listed small and micro enter$rises S"#s access to finance as an

im$ortant $olic& $riorit&3

)frica;s "S#s ha(e little access to finance, /hich thus ham$ers their emer*ence and e(entual *ro/th3 +heir main sources of ca$ital

are their retained earnin*s and informal sa(in*s and loan associations, /hich are un$redictable, not (er& secure and ha(e little sco$e

for ris7 sharin* because of their re*ional or sectoral focus3 )ccess to formal finance is $oor because of the hi*h ris7 of default amon*"S#s and due to inade:uate financial facilities3 Small businesses in )frica can rarel& meet the conditions set b& financial institutions

/hich see "S#s as a ris7 because of $oor *uarantees and lac7 of information about their abilit& to re$a& loans3

+he financial s&stem in most of )frica is underde(elo$ed ho/e(er and so $ro(ides fe/ financial instruments3 a$ital mar7ets are in

their infanc&, shareholdin* is rare and no lon*term financin* is a(ailable for "S#s3 Nonban7 financial intermediaries, such as

microcredit institutions, could be a bi* hel$ in lendin* mone& to the smallest "S#s but the& do not ha(e the resources to follo/ u$

their customers /hen the& e6$and %auffmann, 20053

$'( Statement of the Problem

In almost all economies of the /orld es$eciall& in de(elo$in* countries in )frica, micro and small enter$rises are crucial and are a 7e&factor for sustained *ro/th and de(elo$ment3 "S#s $la& $i(otal roles in creatin* d&namic, mar7et oriented economic *ro/th

em$lo&in* the *ro/in* /or7force in de(elo$in* countries, alle(iatin* $o(ert& and $romotin* democrati9ation3

'$on attainment of inde$endence in 1A8!, the countr&;s economic $olic& /as articulated in Sessional $a$er No310 of 1A85, titledHAfrican socialism and its application to planning in Kenya3 +he $a$er defined the strate*& to $romote ra$id economic *ro/th

throu*h $ublic sector $ro*rammes, encoura*ement of both smallscale and lar*escale farmin*, and the $ursuit of accelerated *ro/th

of $ri(ate sector in(estment re$resentin* E4 $ercent of %en&an labour force


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the or*ani9ed $ri(ate sector *rou$s; &ear in &ear out3 +he *o(ernment throu*h its bud*et allocations, $olicies and $ronouncements

ha(e si*nified interest and ac7no/led*ement of the crucial role of the "S#s, subsectors of the econom& and hence made $olicies for

ener*i9in* the same3 +he %en&a National =ureau of Statistics, 200E found that three out of fi(e businesses in %en&a failed /ithinthe first fe/ months of o$eration and those that continued B0 $er cent failed before the fifth &ear3 "S#s ha(e uni:ue issues, /hich

affect their *ro/th and $rofitabilit& and hence, diminish their abilit& to contribute effecti(el& to sustainable de(elo$ment of the

econom&3 )mon* those issues is inade:uate access to credit facilities3

Des$ite the efforts b& (arious sta7eholders, lac7 of access to credit is almost uni(ersall& indicated as a 7e& $roblem facin* "S#;s3

+hese credit constraints o$erate in (ariet& of /a&s in %en&a /here unde(elo$ed ca$ital mar7et forces entre$reneurs to rel& on self

financin* or borro/in* from friends or relati(es3 It also forces them to rel& on hi*h cost short term finance /hich is also com$licated3

+he stud& sou*ht to establish the challen*es facin* "S#s in accessin* credit facilities in %an*emi arambee "ar7et in Nairobi it&

ount&, %en&a3 +he s$ecific ob-ecti(es /ereG to establish the influence of collateral re:uirements on accessibilit& of credit facilities b&

"S#s in %an*emi arambee mar7et in Nairobi it& ount&, %en&aG to determine the influence of cost of credit on accessibilit& of

credit facilities b& "S#s in %an*emi arambee mar7et in Nairobi it& ount&, %en&aG to in(esti*ate the influence of a(ailabilit& ofinformation on accessibilit& of credit facilities b& "S#s in %an*emi arambee mar7et in Nairobi it& ount&, %en&a and t o establish

the influence of business ris7s on accessibilit& of credit facilities b& "S#s in %an*emi arambee mar7et in Nairobi it& ount&,

%en&a3

onsiderin* the si*nificance of "S#s in %en&a, it is im$ortant to understand the challen*es facin* "S#s in accessin* credit facilities

in %an*emi arambee "ar7et3 +he research is e6$ected to benefit (arious *rou$s of sta7eholders as follo/sL

#' /olicy makers

+he research /ill enable the $olic& ma7ers to come u$ /ith a (iable and focused entre$reneurshi$ strate*& that can hel$ "S#s access

to credit facilities3 +he stud& /ill also *enerate em$irical data and information beneficial to the @o(ernment and the 'ni(ersit& le(el3

##' Academicians and researchers

+he stud& /ill be a source of reference material for future researchers on other related to$icsG it /ill also hel$ other academicians /hounderta7e the same to$ic in their studies3

###' &esearch institutions

+he research /ill contribute to the future research materials for the research institutions3

#0' Financial institutions

+he research /ill come u$ /ith $roducts /hich are tailor made to fit into entre$reneurshi$ financial needs3

0' )ther Stakeholders

+o sta7eholders li7e financial institutions, in(estors, shareholders, em$lo&ees, $ressure *rou$s, etc3, the research $ro(ides information

for su**estin* im$ro(ement in ser(ice deli(er& of the res$ecti(e credit facilities $ro(iders in %en&a3

0#' Scope o1 the Study

+he stud& focused on "S#s in %an*emi arambee "ar7et in Nairobi it&ount&, %en&a and challen*es the& face in accessin* credi

facilities3 +he total number of "S#s re*istered /ith the %an*emi arambee "ar7et )ssociation is 858 out of /hich 241/ere selected

for the research $ur$oses3

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(' 2#+E&A+"&E &E0#E

('$ #ntroduction

+his cha$ter on literature re(ie/s (arious theories that under$in challen*es facin* "S#s in accessin* credit facilities3 S$ecificall&

$ec7in* order theor& and credit rationin* theor&3 +his is follo/ed b& the conce$tual frame/or7, em$irical re(ie/ of literature related

to the to$ic under stud& and the criti:ue of this literature3 .inall&, the cha$ter del(ed on the *a$s that arose from this literature and thenthe summar&3

('( +heoretical Frame3ork

('('$ /ecking )rder +heory

"&ers 1AB4 and "&ers ?"a-luf 1AB4 de(elo$ed the Pec7in* eiss 1AB1 e6$lained the choice amon* different financin* sources under conditions of as&mmetric information and

credit rationin*3 )s&mmetric information can lead to credit rationin* conditions b& modif&in* the ris7return distributionG this factencoura*es ban7s to refuse ca$ital for in(estments and $roduces di(er*ence bet/een ca$ital demand and su$$l& )lfo ?+ro(ato,

20083 onstrained access to finance deri(ed from financial institutions; credit rationin* beha(ior mi*ht not be efficient because

mana*ers /or7 under conditions of as&mmetric information3 +his ma& result in less $rofitable in(estments *ettin* financed /hile

more $rofitable in(estments are bein* left out and thus resultin* in ad(erse selection and moral ha9ard ris7s3 +herefore, as&mmetric

information can e6$lain as&mmetric of credit amon* firms /ith identical characteristics, the lenders not bein* a/are of the e6actban7ru$tc& li7elihood for the firms, 7no/ onl& that this li7elihood is $ositi(e and therefore choose to increase debts; cost3

Startu$ small firms are more li7el& to be affected b& information as&mmetr& $roblems3 Dea7ins, North,=aldoc7 and >hittam 200Bar*ued those information as&mmetries are more acute in ne/ and technolo*&based $ro$ositions3 +he& ar*ued at an earl& sta*e

information is limited and not al/a&s trans$arent and assets are often 7no/led*e based e6clusi(e associated /ith the foundin*

entre$reneur3 #s$eciall& /ith manufacturin* and technolo*& based firms, entre$reneurs ma& be reluctant to $ro(ide full information

about the o$$ortunit& because of concerns that disclosure ma& ma7e it easier for others to e6$loit3

+here are some cate*ories of S"#s that /ill face additional $roblems due to lac7 of securit&, such as &oun* entre$reneurs or those

from de$ri(ed areas3 In addition, there ma& be as&mmetries arisin* from location as /ell as sector3 .or e6am$le, o/ners of "S#s in

rural en(ironments ma& face difficulties /ith access to ban7 finance3 Small firms are more li7el& to be rationed because the& are seen

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istorical de(elo$ment and the associated culture, of the ban7in* s&stem under$in the $roblem of the em$hasis on the $ro(ision of

collateral as a $rimar& condition in lendin*3 =an7s ha(e al/a&s ado$ted a ris7 ad(erse stance to/ards small firms, /ith an

accom$an&in* inabilit& to focus on the income *eneratin* $otential of the (enture, /hen anal&9in* the li7elihood of loan re$a&ment=ea(er, 20023

redit constraints can occur /hen ban7s increase collaterals for loans3 )s a result, lo/ interest borro/ers includin* "S#s ma& be

remo(ed from the list of $otential customers and ban7s ma& s7i$ these customers Sti*lit9? >eiss, 1AB13@an*ata ?"ata(ire, 201!in their stud& on challen*es facin* "S#s in accessin* finance from financial institutions, found out that (er& fe/ "S#s succeed in

accessin* fundin* from financial institutions, the main reason bein* failure to meet lendin* re:uirements, chief amon* them bein*$ro(ision of collateral securit&3

) stud& /as done on challen*es faced b& Small ? "edium #nter$rises S"#s in obtainin* credit in @hana3 =ased on the res$onses

recei(ed throu*h the :uestionnaires circulated, it became e(ident that S"#s in @hana li7e most S"#s in other countries are faced

/ith ma-or challen*es in accessin* credit3 +hese challen*es /ere re(ealed b& the stud& to include, the inabilit& of S"#s to $ro(ide

collateral and other information needed b& ban7s such as audited financial statement cou$le /ith the hi*h cost of loan in terms of hi*hinterest rates ma7e it e6tremel& difficult to access ban7 loans Vu(or?)c7ah, 20113

ress& and +oi(anen 2001 sa& that, Hbetter borro/ers *et lar*er loans and lo/er interest ratesG collateral $ro(ision and loan si9e

reduce the interest rate $aid 33the ban7 is sho/n to use :ualitati(e as /ell as :uantitati(e information in the structurin* of loancontracts to small businesses3 In effect, it ma& therefore be that sim$le because ban7s a$$roach the lendin* $rocess in a ris7a(erse

/a& in order to $rotect the funds of sa(ers, and thus turn do/n a number of $ro$ositions $ercei(ed to be Mris7ier;, that there is an

a$$arent Mdiscrimination; a*ainst for e6am$le /omen and ethnic minorities3

(''( Cost o1 Credit

+he cost of credit accessibilit& refers to the amount of mone& the entre$reneurs $a& in $rocess of borro/in* mone& from financial

institutions3 +he 7e& indicators of cost in this res$ect are $rocessin* fees, ne*otiation fees, interest rates, $ersonal insurance, le*al fees

and tra(ellin* e6$enses that the entre$reneurs meet in the $rocess of ac:uirin* credit3 allber*, 2002 sin*led out hi*h ris7sassociated in lendin* S"#s and fi6ed costs associated in ac:uirin* sound information about the borro/er b& financial institutions as

the ma-or dri(in* force to the hi*h cost of credit3

i*h transaction costs do therefore not onl& increase the cost of borro/in*, but can also restrict access to e6ternal finance for someborro/er *rou$s3 >hile transaction costs are restrainin* for all borro/ers, there are ar*uments that the& are e(en more constrainin*

for small and micro enter$rises3 +heir di(erse characteristics and their relati(e o$a:ueness increases assessment and monitorin* costs

'nli7e other credit cate*ories, such as consumer credit or mort*a*e lendin*, S"# lendin* is still considered a hi*hcost lendin*

$roduct3 "ore s$ecificall&, unli7e other lendin* $roducts that can be reduced to sim$le transactions, S"# lendin* often still de$ends

hea(il& on relationshi$s bet/een borro/ers and lenders =er*er?'dell, 20083

#(er& business needs financin*, e(en thou*h at first *lance it mi*ht a$$ear that fundin* is unnecessar&3 It is im$ortant that financin*

be as efficient as $ossible, Stutel& 200!3 Stutel&, ar*ues that the borro/er should be able to $ut the cost of all financin* on the samebasis, com$arin* them and come u$ /ith the one that *i(es the lo/est cost financin* o$tion3 =an7s ha(e often been critici9ed for

ha(in* hi*h interest rates char*ed on loans3 =ut sometimes, there are factors be&ond their control3 .or e6am$le, the amount of interest

$a&able on loans de$end on interest rates char*ed, /hich is dri(en b& the base lendin* rate of interest set b& the entral =an7 of%en&a =%3 +he amount of interest rate char*ed is sometimes, intert/ined /ith the securit& of the loan, and the use for /hich it is

to be used, or the nature of the business3 +hat is, the more secure loans are char*ed lo/ interest rates due to, their lo/ ris7s in(ol(ed

+his leads "S#s to the "icro .inance Institutions ".Is, /ho lend unsustainable interests short term loans3

) stud& carried out b& "/an*i and =/isa, 201! on challen*es facin* entre$reneurs in accessin* creditL a case of &outh

entre$reneurs in "a7u&u, %en&a found out that most of &outh entre$reneurs faced challen*es in accessin* credit due hi*h cost of

credit e(idenced in hi*h loan $rocessin* fees, hi*h rate of le*al fee, hi*h rate of interest, hi*h cost of credit insurance and hi*he6$enses incurred in tra(ellin* in the $rocess loo7in* for credit3 +he research recommends that the financial institutions should loo7for /a&s of de(elo$in* credit $roducts that /ould attract the &outh3 +he lenders and other sta7eholders should e6$lore lo/erin* rate of

interest for credit $roducts meant for the &outh3 )nother stud& /as done one ffects of access to financial credit on the *ro/th of

/omen o/ned small retail enter$rises in 'asin @ishu ount&L a case of %a$seret onstituenc&3 +he stud& found out that interest rate

affected access to credit b& /omen entre$reneurs o/nin* small scale business enter$rises in %a$seret onstituenc& helu*et, 201!3

('' A5ailability o1 #n1ormation on 1inance

+he access to credit information and the technolo*& in local lendin* en(ironments determine the e6tent to /hich small enter$risesobtain sufficient e6ternal financin* to e6$loit $rofitable $ro-ects3 +he e6tent to /hich the business en(ironment inhibits the o$timal

$ro(ision of credit determines the si9e of the fundin* *a$ that small enter$rises mi*ht face =er*er et al3, 20043 )ccess to information

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(''7 Access to Credit Facilities

)ccess to finance hel$s all firms to *ro/ and $ros$er3 o/e(er, lac7 of access to credit is a ma-or im$ediment inhibitin* the *ro/th of

micro enter$rises @


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business also is a ma-or threat3 Nta7oba-ira, 201!, did a stud& on factors affectin* the $erformance of "S#s traders at it& Par7

ha/7ers mar7et in Nairobi ount&, %en&a3 +he stud& concluded that access to finance affected $erformance of "S#s to a *reat e6ten

because it limited the entre$reneurs; abilit& to ta7e ad(anta*e of o$$ortunit& as and /hen the& arose3

)nother stud& /as done /hich sou*ht to identif& critical factors that influence access to ban7 credit b& "S#s3 +he stud& indicated

that entre$reneurial orientation is a direct determinant of access to credit b& "S#s3 .urther, 7no/led*ebased resources *ained from

maturation a*e, trainin*, $re(ious startu$ e6$erience and (icariousl& throu*h entre$reneurial $arents /ere found to be associated/ith *reater le(els of entre$reneurial orientation3 a*ema, 20083 Nal&an&a

2012 in his stud& on in(esti*ation into factors affectin* the $erformance of small scale enter$rises in )S) areas ola +o/n +ana

Ri(er District, recommended that the *o(ernment could consider *i(in* chea$ loans to small scale enter$rises /ithout collaterals3

('7 Criti4ue o1 E8isting 2iterature &ele5ant to the Study

)lthou*h most studies indicated that there /ere $roblems relatin* to cost of credit, a(ailabilit& of information on finance, collateralre:uirements and business ris7s, there ha(e been fe/ studies that ha(e dealt /ith all in combination3 .or instance, @itari, 2012 found

in her stud& on factors affectin* /omen entre$reneurs; financial $erformance in %en&aL a case of N*ara "ar7et that lac7 of

information on /ho is offerin* /hat and the cost of obtainin* such ser(ices limit them and that hi*h in(entor& costin* are some of the

ma-or dra/bac7s for success in /omen entre$reneurshi$3 She ho/e(er did not stud& the effect of cost of credit and collateral$ro(ision on accessibilit& of credit facilities3

"ira and


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businesses in o$eration are mainl& in *reen *roceries, clothin* and shoe (endors, food (endors, salons, cereals (endors, and $oultr&

(endors3 +his is sho/n in +able !313

+he business o/ners res$onded to the :uestionnaires since most of these businesses are ran b& the o/ners3

+able '$ /opulation

' Sampling and Sampling +echni4ues

+his section discussed ho/ the sam$le si9e /as arri(ed at and the sam$lin* techni:ues used3

''$ Sample Si;e

)s described b& "u*enda and "u*enda 200! a sim$lified formula for calculatin* sam$le si9e of a $o$ulation that is less than 10,

000 is *i(en3

n

nf

1 T nN

nf the desired sam$le si9e /hen the $o$ulation is less than 10,000

n the desired sam$le /hen the $o$ulation is more than 10,000

N the estimate of the $o$ulation si9e

!B4

nf 241

1 T !B4858

+able '( Sample Si;e

Nature o1 *usiness /opulation Sample si;e := ='9(6

6'7 Cost o1 Credit


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Factors "nder Consideration Mean Std' %e5iation

)(ailabilit& of info on ho/ to *o about securin* credit facilities 23A1 3A!4

)(ailabilit& of info on /ho is offerin* credit facilities 2322 354!

)bilit& to com$ile financial records and accounts 2312 3502

#6$erience on financial mana*ement 230A 35E8

=usiness $lan 7no/led*e 230B 35E1

+rainin* on financial mana*ement 2305 3585

A5erage ('$$ '77$

6': *usiness &isks

In re*ard to the e6tent to /hich business ris7s influenced access to credit facilities b& the micro and small enter$rises, the stud&

established that business ris7 had an influence to a *reat e6tent M 4320, SD 038BA3 +he ris7 of se(ere com$etition influencedaccess to credit to a *reat e6tent M 43!B, SD 03845 /hile the ris7 of accountabilit& had an influence to a *reat e6tent M 43!!

SD 03E!03 +he factor /ith the least influence /as the ris7 of inade:uate human and financial ca$ital /hich influenced access to

credit also to a *reat e6tent3 +he results of the stud& are as sho/n in +able 43A3 +hese findin*s are su$$orted b& @reen 200!, /ho

ar*ued that commercial ban7s tend to im$ute a hi*h ris7 to small enter$rises and are therefore reluctant to e6tend credit to themes$eciall& due to their small si9e and inherent (ulnerabilit& to mar7et fluctuations and the mortalit& rates of small enter$rises3

+able 6'>- *usiness &isks

Factors "nder Consideration Mean Std' %e5iation

Se(ere com$etition 43!B 3845

)ccountabilit& 43!! 384!

'n$redictable o$eratin* en(ironment 43!0 3E!0

Poor in(entor& mana*ement 4321 3858

Dela&ed $a&ments 4311 3855

Inade:uate human and financial ca$ital 4308 3E81

A5erage 6'(= '9@>

6'@ Access to Credit Facilities

6'@'$ E8tent o1 Access to Credit

+he stud& sou*ht to 7no/ the e6tent to /hich businesses in %an*emiarambee "ar7et are able to access credit facilities3 +he stud&

found out that !831Q could access credit facilities onl& to a little e6tent /hile 28Q could onl& access credit to a moderate e6tent3


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.re:uenc& Percent

ittle e6tent 81 !831

"oderate e6tent 44 2830

ar*e e6tent !A 2!31

Ver& lar*e e6tent 1B 103E

No e6tent E 432

+otal $9> $=='=

6'> Application 1or Credit Facilities

+he stud& sou*ht to 7no/ if the res$ondents had e(er a$$lied for credit facilities and /hether the& recei(ed an& financin* after

a$$l&in* for it3 +he studies found out that ma-orit& A43EQ of the res$ondents ha(e at one time a$$lied for a credit facilit& to e6$andtheir businesses /hile 53!Q had ne(er a$$lied for an& credit facilit&3

+he results for the stud& are as sho/n in +able 5313 .urther, the stud& re(ealed that A43EQ of those /ho a$$lied for the credit /eresuccessful in *ettin* the financin* /hile 53!Q /ere not successful3

7'$ Application 1or Credit FacilitiesFre4uency /ercent

Yes 180 A43E

No A 53!

+otal $9> $=='=

6'$= Fre4uency o1 Application 1or Credit

In this section, the stud& sou*ht to 7no/ the fre:uenc& /ith /hich the res$ondents a$$l& for credit facilities from ban7in* and nonban7in* institutions3 +he stud& found out that ma-orit& 80Q a$$l& for credit facilities from nonban7in* institutions (er& fre:uentl&

/hile E53EQ of the res$ondents rarel& a$$l& for credit facilities from ban7in* institutions3 +his im$lies that the res$ondents; $refer to*et financin* from nonban7in* institutions /here the terms are more lenient3 +he stud& findin*s are as sho/n in +able 532G

+able 7'(- Fre4uency o1 Application 1or Credit

Fre4uency Non?*anking


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Figure 6'9- Amount 1or Credit Applied 1or &ecently

6'$( /er1ormance o1 Commercial *anks

+he stud& further sou*ht to 7no/ ho/ the commercial ban7s /ere $erformin* in relation to offerin* of credit facilities3 +he stud&

found out that the commercial ban7s /ere rated to be $erformin* fairl& b& 5B38Q of the res$ondents /hile !43!Q felt that the$erformance of ban7s /as *ood3


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7'$ #ntroduction

+his cha$ter $ro(ides a summar& of ma-or findin*s, discussions and conclusions dra/n thereof3 +he researcher then $resents the

recommendations for both the research and for the $olic& chan*e and $ractice3

7'( Summary o1 Maor Findings

+he stud& sou*ht to establish the e6tent to /hich collateral re:uirements, cost of credit, a(ailabilit& of information and business ris7s

influence access to credit facilities b& "S#s in %an*emi arambee mar7et in Nairobi it& ount&, %en&a3 ) total of 241:uestionnaires /ere administered and the stud& mana*ed to obtain 18A com$leted :uestionnaires re$resentin* E0312Q res$onse rate

+he :uestionnaires contained :uestions that addressed the ob-ecti(es of the stud&3

7'('$ Collateral &e4uirements

+he stud& established that ma-orit& of the res$ondents obtained their startu$ ca$ital from $ersonal sa(in*s follo/ed b& famil& and

relati(es indicatin* that the res$ondents chose to *et their startu$ ca$ital from sources that do not ha(e strict re:uirements such as

collateral securit& and hi*h re$a&ment cost3

7'('( Cost o1 Credit

+he stud& established that re$a&ment $eriod, ta6ation, loan $rocessin* fees and fluctuation of interest rates influenced access to credit

to a *reat e6tent3

7'(' A5ailability o1 #n1ormation on Finance

+he stud& re(ealed that a(ailabilit& of information on finance influenced access to credit facilities onl& to a small e6tent3 +hese resultssu$$ort the findin*s of the stud& conducted b& %in&an-ui, 2008 /here some entre$reneurs felt that it /as difficult to obtain loans as

the& had to sho/ credit records and the& did not full& understand the re:uirements of *ettin* and $a&in* loans3

7'('6 *usiness &isks


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7'6'$ Collateral &e4uirements

+he stud& found out that access to credit facilities /as hi*hl& limited b& strict collateral re:uirements such as *rou$ *uarantees,

indi(idual *uarantors, ha(in* a ban7 account, ha(in* e:uit& ca$ital and assets as title deeds and lo* boo7s3 +his stud& thereforerecommended that credit *i(in* institutions should come u$ /ith $roducts for "S#s /here collateral re:uirements are lenient3

7'6'( Cost o1 Credit

+he stud& found out that access to credit facilities b& micro and small enter$rises is hi*hl& limited b& hi*h re$a&ment cost of credit*i(en3 +his stud& therefore recommends that the mana*ement of credit *i(in* institutions should consider lo/erin* their interest rates

as a /a& of encoura*in* "S#s to borro/ from them3

7'6' A5ailability o1 #n1ormation on Finance

+he stud& found out that some micro and small enter$rises find it difficult to obtain credit facilities since the& do not full& understand

the re:uirements and $rocedures of ac:uirin* credit facilities3 +his stud& recommends that the credit *i(in* institutions come u$ /ith

$ro*rammes of educatin* the "S#s on ho/ the& can *o about obtainin* credit facilities3 +he stud& therefore recommends that the

mana*ement of these businesses should $ut in $lace $ro$er accountin* $ractices and ade:uate internal control s&stems /hich /illcounter $roblems of information as&mmetr& that ma7e "S#s ris7& for credit *i(in* institutions3

7'6'6 *usiness &isks

+he stud& found out that the business ris7s hinder micro and small enter$rises from accessin* credit facilities to a *reat e6tent3 +his is

because the credit *i(in* institutions consider "S#s to be hi*hl& ris7& due to the small si9e and (ulnerabilit& to mar7et fluctuations

+he stud& recommends that the mana*ement of "S#s should differentiate their $roducts and ser(ices as a /a& of co$in* /ith se(ere

com$etition and other business ris7s3

7'6'7 Access to credit 1acilities

+he stud& found out that (er& fe/ "S#s ha(e access to credit facilities3 "ost of the res$ondents $referred to use $ersonal sa(in*s and

contributions from relati(es and friends since the& find it difficult to access to credit from credit *i(in* institutions3 +he& stud&therefore recommends that the mana*ement of the institutions should increase their $roduct $ortfolios the& offered to "S#s3 +he

mar7etin* de$artments should endea(or to research on the clientsO desired o$tions and be able to include the $robable and realistic

ones onto the list3 +his /ill hel$ to reach out to the "S#s that cannot access to credit facilities3

7'7 Areas 1or Further &esearch

+he stud& recommends further research in the follo/in* areasG the effect of credit on the $rofitabilit& of micro and small enter$risesG

the effect of information technolo*& on "S#s access to credit facilities in %en&a3

In future, a similar research should be done co(erin* other to/ns as this research onl& co(ered micro and small enter$rises in

%an*emi arambee "ar7et3

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)bor, J3, ?=ie7$e, N3 20083Small =usiness .inancin* Initiati(es in @hana3Problems and Perspectivesin Management, 4!, 8AEE3

)lfo, "3 and +ro(ato, @3 2008L redit Rationin* and +he .inancial Structure of Italian Small and "edium #nter$rises3 CES !or

"ergata#$es. Paper Series, 2EB0L 1203

)l$honso Van )ardtSmit and


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