Relationship lending and credit availability to small and medium manufacturing enterprises in Nairobi Kenya

Abstract

In developing countries and Africa in particular, small businesses (SMEs) lack access to capital and money markets. Despite efforts by financial institutions and public sector bodies to close funding gaps, Small and Medium Enterprises (SMEs) continue to experience difficulty in obtaining capital. It was expected that with the presence of relationship lending, such businesses would be assured of survival. The objective of the study was to investigate the impact of relationship lending on credit availability to manufacturing SMEs in Kenya. The study used a descriptive research design. The study targeted SMEs involved in manufacturing business in Nairobi Metropolis. The study selected a sample of 10% of Manufacturing SMEs in Nairobi Metropolis. The study collected both primary and secondary data. The questionnaire had both open and close-ended questions. The researcher administered the questionnaire individually to all respondents. Descriptive and content analysis techniques were employed. Descriptive statistics were used to summarize the data. This included percentages and frequencies. The study also conducted a multiple regression analysis. The study established that most of manufacturing SMEs in Nairobi were public limited companies with ten to twenty employees. These institutions had relationships with commercial banks which extended loans to them at high interest rate. There was no Government involvement in funding of the SMEs sampled. Even NGOs involvement was insignificant. It was also established that there was a positive relationship between credit availability to manufacturing SMEs in Nairobi and relationship lending them the commercial banks. However, this relationship was so insignificant to be of any economic beneficial to manufacturing SMEs in Nairobi. Finally, it was concluded that other factors such as market conditions played significant role in ensuring credit availability to manufacturing SMEs.