Factors affecting access to credit by small and medium enterprises in microfinance institutions in Nakuru municipality, Kenya

Abstract

Microfinance can be seen as a supply of loans, savings and other financial services to the SMEs. Financial access can help firms start up and expand their businesses through inter alia development of new products and production processes, and investment in human capital. A variety of financial services (credit, savings, insurance, and payment facilities) are crucial for growth in the SME life cycle. This study therefore sought to evaluate factors affecting access of credit by small and medium enterprises in microfinance institutions. The specific research objectives included determining: the extent to which SMEs characteristics affect credit accessibility facilities offered by MFIs, the extent to which collateral of SMEs affects credit accessibility from MFIs and to evaluate whether credit policies of MFIs affect credit accessibility by SME. The study adopted cross-sectional survey design to achieve the objectives. The study employed a sample of 244 from a population of 620 SMEs located within Nakuru municipality. Primary data was collected from the study respondents using structured questionnaires administered by the researcher. Data was analyzed with the help of the Statistical Package for Social Sciences (SPSS) computer software. Both descriptive statistics (frequencies, means and percentages) as well inferential statistics (correlation and regression analysis) were used analyze to test the relationship between independent variables (factors affecting access to credit) and dependent variable (Access to credit). From the results of data analysis it was concluded that although the SMEs characteristics had the capability to positively affect access to credit by SMEs, they were yet to be fully utilized to the advantage of the SMEs in the study area. The MFIs requirements and credit policies negatively and significantly influenced access to credit offered by the MFIs in the study area. The study recommends that: the MFIs should seek to transform some of the critical characteristics of SMEs such as size, industry sector and location to their advantage in order to enable SMEs increase access to credit; endeavour to understand and meet the SMEs requirements for credit such as helping them in preparing financial statements and credit scoring and MFIS should address the various credit policies such as lack of training, collateral, past lending history and cost of lending in order to increase SMES access to credit through capacity building.