Competition among lending institutions and accessibility to credit by small and medium enterprises in Nakuru Kenya

Abstract

Kenya has witnessed a considerable increase in number of financial institution in the past two decades. This has heightened competition among lending institutions in Kenya as they compete for customers in the market. This has resulted in favorable rate of interest, favorable lending policies and increase in credit products. Kenyan SMEs have been affected by the recent competition in financial institutions. Access to credit is essential for growth and performance of SMEs in developing nations. Using a survey study of banking institutions and SMEs in Nakuru town, this study sought to determine the impact of recent competition on Kenyan SMEs. The study objectives were to determine the rate of interest charged by financial institutions, types of products and to evaluate how competition among lending institutions have influenced availability of credit to the SMEs. In order to realize these objectives, the researcher adopted a survey study design to obtain cross-sectional data from financial institutions and SMEs in Nakuru town. A sample of 30 financial institutions and 50 SMEs were selected using stratified random sampling technique to obtain a representative sample. A total of 80 useable questionnaires (100%) were satisfactory filled and returned to the researcher. Collected data was analyzed using descriptive and inferential statistics and findings presented in form of text, tables, graphs and charts. The study found that MFIs and SACCOs to be the main sources of credit for SMEs. It also found that access to long term credit in banks is still very low. Overall, study findings revealed a positive significant correlation between recent competition in financial market of Kenya and access to credit in SMEs. It has led to favorable rate of interest, lending policies and increased credit products and services. However, competition among lending institutions had the least impact on the rate of interest and greatest impact was on lending policies and credit products and services. The researcher recommends for increased market research to aid in development of favorable credit products. There is need to incorporate technology to reduce the cost of borrowing in Kenya.