Determinants of access to bank credit by micro and small enterprises in Kenya

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Publication Date: 
01 January 2008
Wagema G Mukiri
UN Millennium Development Goal: 
Eradicate extreme poverty and hunger

A study of the deterimants of access to bank credit by micro and small business enterprises in Kenya.

The existing knowledge on the factors that can enhance the likelihood of Micro and Small Enterprises (MSEs) to access credit from banks is inconclusive. This limits the theoretical and practical robustness of the existing literature on small business finance. To address this concern, this study adopted and extended the resource based theory.

In this framework, accessing bank credit was considered as a new source of finance for MSEs. Consequently, it was assumed that entrepreneurial orientation is an important determinant of obtaining credit from banks. Moreover, prior knowledge was considered to be an antecedent of entrepreneurial orientation.

To test these propositions, a survey of 218 small manufacturing enterprises in Nairobi was conducted. Eight percent of the surveyed enterprises had accessed credit from banks in the last twelve months. Two different categories of enterprises were identified using cluster analysis. The first group was made up of firms with high entrepreneurial orientation while the second was made up of enterprises with low entrepreneurial orientation. Both groups differed significantly in all but one measure of entrepreneurial orientation. Further, entrepreneurial orientation was found to be significantly associated with obtaining credit from banks. Discriminant analysis was used to explore which resources discriminated between high and low entrepreneurial orientation firm-clusters. This procedure produced a validated discriminant function that comprised four significant independent variables, including age of the entrepreneurs, start-up experience, training and having parents in business.

The foregoing evidence offers support to the resource-based view that the source of success in obtaining credit from banks is found essentially within the firm. This evidence also underlies the primacy of entrepreneurial capacity factors in enhancing access to bank credit by MSEs. It is therefore concluded that the existing policy initiatives that aim at enhancing access to bank credit by MSEs should focus on furnishing MSEs with competency enhancing support. Policy efforts can also be directed towards improving the employment potential of MSEs.