Interest rate as a performance determinant among small and medium enterprises within the waste paper recycling and export in Nairobi County

Abstract

Studies carried to reveal the impact of interest rates to S.M.Es, within the waste paper recycling sector, which obtained loans, showed that, majority of their business returns decreased during the loan period, income decreased, In addition majority of SMEs operator's finds it difficult to access financial assistance through the formal commercial financial markets. Although the demand for credit is immense, the commercial banking sector has not found the SMEs market segment to be attractive for the following reasons: lending financial institutions perceive SMEs as bad credit risks, they are perceived not to have stable viable business from which to borrow and from which to generate payment. Moreover, without reliable financial information, few personal assets SMEs cannot satisfy commercial lender collateral requirements. Financial lenders believe that providing MFI services are inefficient and costly because SMEs cannot afford to borrow credit at the market interest rates thus the interest rate margin charged by commercial institutions is a major setback to the world of SMEs whereby they perform below average because of low working capital and high debts as a result of repayment of borrowed loans. In the area of study, S.M.E. experience a retrogressive growth accompanied by poor performance as a result of the liberalized interest rate market which is unpredictable and have no exception of S.M.E.s in charge margins. High interest rates have eventually costed their lives and render many others the risk of being wiped out from the market. The aim of the study was to determine the extent to which interest rate determine the performance of SMEs within the waste paper recycling and export in Kenya. The study adopted descriptive survey of SMEs in Nairobi and targeted small and medium enterprises operating within Nairobi and the sample size was the 35 waste paper and manufacturing industries within Nairobi. Data collected was coded and entered into a computer for analysis using the statistical package for social science student (SPSS). From the analysis of the findings, the study recommended that government should intervene to control exorbitant interest rates charged by lending institutions to make affordable to the small and middle income enterprises borrowers. The study also recommended that SMEs should have 'global outlook' so that interact and share information, technology and products. Small businesses should consider what global trends are affecting availability of resources, increasing or decreasing demand for products or service and where there is an unfilled need one might be able to meet. Government should step in to provide information on business trends. The study findings further recommended that the government should devise ways of providing credit to the SMEs to start operating. The various banks should lower the interest rates on the loans as well as remove the requirements for securing a loan to levels which everyone in question can access funds.