Challenges of Financing Small & Medium Enterprises [smes] Inequity Bank Branches in Kenya

Abstract

The study was seeking to determine the challenges faced by Equity Bank branches in financing SMEs in Kenya and examine how it’s trying to address these challenges. The unit of study was Equity Bank (K) Limited and judgmental sampling was used to select 50 branches to be studied. Primary data was collected using structured questionnaires while the published financial statements for the Bank were the main sources of secondary data. The questionnaires were divided into three sections; section A addressed the background information on Equity Bank; section B addressed SME products offered by the bank while section C addressed the challenges in the process of extending finance to SMEs. Major challenges faced by the Equity bank branches as revealed by the study in the process of lending to small businesses are that: most SMEs do not submit mandatory documents required for financing, 66.7% of SMEs submit cash flow projections while 52.8% submit certificates of registration/incorporation and securities provided are weak as 22% provides chattels mortgage and inventory hypothecation while only 4% provide housing as their collateral. This indicates a bigger challenge the bank branches face in financing this sector. Detailed information on the bank’s operation especially on the guarantee schemes, sources of funds and the total sum of SME lending book could not be availed due to the bank’s confidentiality policy. These were some of the challenges faced while collecting data in the field. An empirical survey should be done to include all of the 160 branches in Kenya which might produce representative results. The study recommends that a further research could also be done to look into different financing strategies adopted by commercial banks in serving the SME sector.