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Finance

  • Date Submitted: 03/13/2014 11:59 PM
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Effects of finance on growth of SME in Kenya a case study of Nairobi
Statement of the Problem
In Kenya, SME have little access to finance, which thus hampers their emergence and eventual growth and survival. Financial constraint remains a major challenge facing SME in Kenya Wanjohi and Mugure (2008) and this will be evidence in this research paper. Their main sources of capital are their retained earnings and informal savings and loan associations, which are unpredictable and not very secure.
SME can rarely meet the conditions set by financial institutions, which see them as a risk because of poor guarantees and lack of information about their ability to repay loans. The financial system in most of Africa is under-developed however and so provides few financial instruments.
The researcher has come up with some of the reasons why SME find it hard to access finance in Kenya:
High interest rates by the financial institutions
Delay in the loan processing due to lack of securities and other requirements by the financial institutions.
Some of the SME do not have a good track records hence most of the local banks fear to give them the unsecured loans.
Banks are particularly nervous of smaller businesses due to a perception that they represent a greater credit risk. Kariuki’s (1995) study of bank credit access in Kenya illustrates this point further. A survey of 89 small and medium-scale firms in manufacturing and service industries, combined with secondary information from commercial banks, found that from 1985 to 1990 the average real volume of credit for the sample firms fell, except for the year 1986 which showed a marginal increase of 1.5 per cent. Small scale borrowers were found to be faced with higher nominal interest rates at higher inflation rates in the latter half of the 1980s. Moreover, the explicit transactions costs of borrowing were found to be high in relation to interest costs.
Because the information is not available in other ways, SME will have to...

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