Challenges faced by small & medium enterprises in accessing finance in Kiambu town, Kenya

Abstract

Importance in the role of the SME in the development process continues to be in the forefront of policy debates not only in developing countries but also in developed countries. The advantages claimed for SME are various, including the encouragement of entrepreneurship; the greater likelihood that SME will utilize labor intensive technologies and thus have an immediate impact on employment generations; they can usually be established rapidly and put into operation to produce quick returns; and they may well become a countervailing force against economic power of large enterprises. More generally the development of SME is seen as accelerating the achievement of wider socio-economic objectives, including poverty alleviation. In spite of the generally fast pace by which aces to financial services for SME is being developed, significant segments of the SME sector do not yet benefit from the expansion and deepening of outreach. In attempting to gain access to financial services SME continue to face constraints caused by many factors. Thus this research intended to study the challenges faced by SME in access to finance. The findings indicated that problems faced by SMEs were insufficient collateral (71.4%) and Business proposal not acceptable (21.4%). on the same note the study identified that the most challenging stage of the loan process were; application and appraisal stage, loan approval stage and the period it took to process the loan. terms of coping mechanism used to manage challenges faced by SMEs in accessing finance, the study identified the following; saving and trying to reduce expenses, attending financial seminars, use of merry go rounds, borrowing from friends at zero interest rates, reducing credit period for the firm’s creditors, obtaining credit facilities from suppliers, ploughing back profits, offering stock as security, consulting with other SMEs owners, joining Sacco, using credit cards and overdrafts. Based on the study findings, it is recommended that the stakeholders within the sector should endeavor to provide financial information infrastructure, the government and financial institutions should also provide a good economic environment where SMEs can be able to borrow at reasonable rates as well as friendly terms. It’s also important to train most of the entrepreneurs on simple financial management tips, to enable them make informed financial decision.