An Analysis of the Determinants of Access to Credit by Small and Medium Enterprises in the Informal Sector in Ongata Rongai

Abstract

Despite the efforts that have been made by governme nts and NGOs to provide credit in many developing countries, the majority of SMEs in the informal sector still report limited access to credit. It is often argued that w omen are particularly more credit constrained than men. This study was conducted in o rder to determine the factors that affect the SMEs accessibility to credit to enable t he relevant authorities develop interventions that will result in an increased cred it availability and uptake. The specific research question addressed is the factors that det ermine access to credit for SMES in the informal sector. In conducting this study primary d ata was collected. The data collection took place between August and September, 2014, cove ring Ongata Rongai Township in Kajiado County. In total, 155 firms were surveyed. Descriptive statistical analysis and Heckman Probit model were applied to analyze the da ta. Results obtained from a probit model showed that women SME owners are less likely to apply and receive credit, that women had low access to credit from formal financia l institutions. Other than gender, the factors that significantly determine access to cred it according to study findings are financial training for the entrepreneur, firm’s tur nover and length of operation of the firm. The study suggests the need to initiate a comprehen sive women empowerment programme to create more awareness on the availabil ity of credit facilities, their conditions and application procedures. It is also i mportant to create knowledge on the economic use of credit for the reduction of poverty