The perceived impact of credit reference bereaus in accessing finance by small and medium enterprises (SMEs) in Kenya

Abstract

This study was set out to evaluate the perceived impact of Credit Reference Bureaus in accessing finance by SMEs in Kenya. The study therefore sought to determine what impact does presence of credit reference bureaus have in relation to accessing finance by SMEs since the adoption of credit reporting in Kenya in 2010. All stakeholders in Kenyan markets now realise that SMEs are the “missing middle”. Their size and demand for credit has outgrown the capacity of microfinance institutions (Mc Donald et al, 2007). It is therefore necessary to evaluate how credit reference bureaus affect access to finance by SMEs nationwide. The research adopted the descriptive research design which was most appropriate in attaining the objective of the study. The target population of this study comprised of all SMEs in Kenya. The study used both primary and secondary data. Primary data was obtained through self-administered questionnaires with closed and open-ended questions. Questionnaire was used since the study was concerned also with variables that cannot be observed such as views, opinion, perception and feeling of respondent. The sample size of this study consisted of the top 100 SMEs in Kenya in year 2011.The top SMEs in Kenya were identified through a survey carried out by KPMG and Nation Media Group. The study found that sharing of credit information had not reduced collateral requirements for commercial/business loans by commercial banks and collateral requirement was a major obstacle that had been a constraint to accessing financing for operation and growth of their businesses. Credit bureaus could alleviate a firm financing constraints by providing information on individuals borrowing and bill paying habits. It enabled the lenders assess credit worthiness, the ability to pay back a loan, and this affects the interest rate and other terms of a loan. Further research should be undertaken to evaluate the status and structure of the credit bureaus. Research should also be undertaken to determine perceived impact of credit reference bureaus in accessing finance by other sectors in Kenya.