FACTORS AFFECTING ACCESSIBILITY OF CREDIT FACILITIES AMONG THE SMALL AND MICRO-ENTERPRISES.

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CHAPTER 1

INTRODUCTION

1.0 BACKGROUND OF THE STUDY

1.1.1 Business financing is a very important factor in growth and performance of businesses, Shepherd, et al (2007) noted that one of the most difficult problems in the new ventures and especially, the small businesses obtaining financing. For the entrepreneur available financing needs to be considered from the perspective of debts versus equity and using external versus external funds. The concern of this study is debt financing or external credit facilities.
The external finances or credit facilities is the type of finance that is obtained from persons other than the actual owners of the company, that is creditors to the company, Manasseh(2004).Manasseh also noted that, credit facilities can be any in any of the of the following forms; loans debentures ,overdrafts, lease finance ,trade creditors, etc.

The main focus the study will be on loan facilities offer by the financial institutions as credit to the small scale traders. Manasseh (2004) found out those financial institutions such as banks offer finances to businesses which are mostly short term in nature. This is because the deposits made with them are demand deposits, which cannot be lent on long term basis. Due to this fact the financing role of commercial banks is limited to short term loans exceeding four years. Short term loans range from three months to a maximum of four years and are given to established customers of the banks who have the necessary security. These are expensive as the customers will have to only pay interest on them, but also the insurance of the security, Manasseh (2004).
1.1.2 Accessibility of credit.
In general the growth and performance of business may be affected by its capital base. The capital depends on its balance between own sources and borrowed sources of capital, or the amount attributable to credit. The portion of the capital structure that depends on credit is not always to the small scale traders. There may be many reasons available for this situation the study will concentrate on how the following factors affect the small scale traders’ accessibility to credit facilities. They include; interest rate, literacy levels, the number of lending institutions, and the security for the loans.
1.1.3. Small scale traders.
The definition of small scale traders has changed over time. Initially they were classified into two categories-those using power with less than fifty employees, but less than hundred. However, capital resources invested on plant, machinery and building, have been the primary criteria to differentiate the small scale industries from the large and the medium scale industries. According to the site; Business headlines India.com (2007), an industrial unit can be classified as small scale unit if it fulfills the capital investment limit or the stock turnover fixed by the government. In Kenya small scale enterprises are those with less than fifty employees, Parker and Torres (1994). Small scale enterprises can also be defined as those businesses with a stock turnover of less than Ksh. 5 million per year.
1.2. Problem statement.
Business growth is predicated upon many factors among these, is the ability of the business people to access credit facilities. Ninety percent of all small and micro enterprise collapse in their first year of start up, due to lack of financial resources, Daily Nation(Tuesday,3rd feb,2009). Although many financial institutions have been vigorously marketing their credit facilities, few SME’s have been accessing them. Therefore there is a reason for the poor accessibility for these facilities. In view of these there is a need for a study to establish the factors that affect the small scale traders in acquiring the credit facilities.
1.3. Objectives of the study.
1.3.1. General objectives.
The general objective of the study is to investigate factors that affect accessibility of credit facilities among the small scale traders.
1.3.2 The specific objectives.
i. To find out whether the interest rate charged affect the accessibility of credit.
ii. To establish whether the level of literacy among the small scale traders affects their access to credit.
iii. To investigate whether the number of lending institutions available affects the accessibility of credit.
iv. To establish whether the demand for collateral by banks affects the accessibility of credit.
1.4. Research question.
i. Does the interest rate charged on credit facilities affect the accessibility of credit?
ii. Is there relationship between the literacy levels of borrowers of credit and its accessibility?
iii. Does the number of credit lending institutions affect the accessibility of credit?
iv. Does the demand for collateral by credit lending institutions affect the accessibility of credit?

1.5. The significance of the study.
The loans advanced to small scale traders come with costs. That is , the interests charged on the principal sum. Therefore the traders are under the obligation to pay the principal sum pus the interest, at the end of the agreed duration. In some cases, the traders are unable to pay in time leading to foreclosure on their businesses. The study is therefore significant to the traders since it will establish whether the loan facilities are worthy the risk of losing their businesses; through liquidation by financiers in case of default.
In the recent times the g.o.k has started a number of loan schemes for various social groups. Among them is the Youth Enterprise Fund (Y.E.F). The Women Enterprise Fund (W.E.F). There is need to monitor these funds to find out factors that may form may form hindrances to their uptake. The factors may affect accessibility of the funds and consequently the performance of the businesses by which they are funded. Therefore the survey is of significance to the government of Kenya, for the purpose of increasing borrowing of the credit, among its beneficiaries to increase business growth and the consequent social standard improvement.
Knowledge is cumulative. Important information can be acquired about a research topic from similar work done, on the same area of research by future researchers. Therefore the survey is much significance to the research institutions, students and other researchers who would get the findings useful in their investigation in the area of study.
There has been increased activity from financial institutions on loan facilities targeted at small traders. Many banks for instance have started projects and put a lot of resources, their aim being to attract these traders. The result of the survey would therefore be of so much significance to these institutions since they would know from the results of the study the constraints faced by the borrowers of credit and reduce them, to increase the lending.
1.6. The limitation of the study.
The study was carried out only withn the Meru town CBD small scale businesses. Factors affecting accessibility of credit facilities may not be uniform within the entire small scale businesses sector. It’s possible also that the number of financial institutions, loan facilities offered, and the lending policies may vary geographically within the same sector.
There was also limitation on some respondents being uncooperative. Some could not understand the significance of the survey to them and therefore they were unwilling to give out information. The researcher could not have much control over them. The result of the study can therefore only be generalized to certain sections of the entire SME sector.
1.7. The scope of the study.
The study was conducted within the Meru town Central Business District (CBD). The CBD has a variety of small scale businesses which includes; agro business shops, chemists, general shops, butcheries, supermarkets, cyber café’s, among others. Therefore its very ideal for the survey. This is so since its represent the entire sector of the small scale business. The researcher concentrated the survey on the following sectors and how they affect the accessibility of the credit by the small scale traders. The factors includes; the interest rate charged on credit, the literacy levels of the borrower, the number lending institutions available, and the demand for collateral by the financial institutions.




1.8. Theoretical framework.
Fig 1.1
Interest rate on credit

Literacy levels of traders.



Number of lenders.

The demand for collateral

(Independent variables) Dependent variables.

Explanation of variables.
Interest rate of credit.
The rate of interest rate charged on the credit determines the cost of the credit. The cost credit is the amount of money the borrower is obligated to pay above the principal sum of money lent.
Saleemi (2007), defined interest as the return on capital. Cost of credit can be classified as; gross interest and net interest. Gross interest is the total amount that the debtor to a creditor and the net interest means the part of interest that is for the use of capital only. The interest rate usually as a percentage of the borrowed amount, determines the amount of interest over duration, which may be a year. High interest rate therefore increases the cost of credit. High interest rate on credit may discourage SME from borrowing reducing the accessibility of credit among them.
Literacy levels of traders.
Most lenders advertise their services on the print media. Since the literacy levels among the small scale traders are low they may not access the information. Others may have general literacy but are not well informed, on the effect of credit facilities on business growth, and therefore may fail to ask for the services. The literacy level may therefore be a constraining factor in the accessibility of credit, among traders.
Demand for collateral by financial institutions.
Most banking institutions demand collateral as one of the requirements for the access to credit facilities. This becomes a constraint to SME’s most of who may not have deeds to capital assets to present as security against the loans. This factor reduces accessibility of these loans. Furthermore, most lending institutions are more inclined to lending to the large scale businesses who have higher success rate, and repayment rate.. the small scale businesses are relegated to the micro finance institutions(MFI’s) and ‘shylocks’ whose lending requirements may further discourage them.
The number of lending institutions
The numbers of small scale traders are many, while the financial institutions with the services tailored to them are few. The loan requirements of the SME’S traders are different from those of the large businesses. This is due to fragile nature of the business among other considerations, such as size, management structure, the capital base etc. Therefore there is need to have many lending institutions whose lending policies are established with such factors in considerations. The few institutions with such considerations are faced by the many small scale traders whose financial demands they may not cater for. This reduces accessibility for those who cannot get credit.






















CHAPTER 2
1.0 LITERATURE REVIEW.
2.1 introductions
This chapter seeks to review the various issues which in one way or another may help the researcher, to address the key factors which affect the accessibility of credit among the SME’s within the Meru CBD. These factors range from the literacy levels, the number of credit lending institutions, the interest rates charged and the demand for collateral from traders by financial institutions.
Small and micro enterprises are the life blood of the economy. They are at the fore front of the government effort to promote enterprise, innovation and increased productivity. Small and micro enterprises will continue to be the main providers of new jobs, Hewitt (2000).
Those role and importance of small businesses to the economies of both the developed and the developing nations has been the subject of increased scrutiny particularly in the last decade. This is due to belief that a prosperous and a dynamic SME sector were crucial to performance of a dynamic economy, Beaver (2002).
However for this sector to continue to growing unabated there is need for flow of credit financing, which is currently not the case. The study seeks to find out the factors that prevent accessibility of credit to finance this important sector of Kenyan economy.




2.2 Theoretical Review
2.2.1 Small and micro enterprises.
Beaver (2002), found out that SME’s are much easier to describe than to define. Further that there is no generally accepted operational or numerical definition of what constitute an SME. Countries and in many cases individual institutions within them have developed classifications and definitions that reflect the nature and compositions of that country’s settings. Definitions may also reflect the nature and context of the industrial sector or the market under consideration; for example different criteria would be considered appropriate for firms engaged in manufacturing, construction, retailing hospitality and tourism, and professional services etc.
According to the wikipedia the internet encyclopedia, the SME is a business that often is unregistered ,run by an individual ,has five or fewer employees and started with a seed capital of not more than three million Kenya shillings.
According to the Gemini report of 1995, the SME sector comprises of 98% of the businesses in Kenya, contributing 30% of employment and creates 75% of all new jobs in the country. The report also states that of the total GDP in the country SME‘s contributes about 12-14%. Further two thirds of the enterprises generates incomes equal to or below minimum wage, with enterprises owned by men and those in urban areas generating more incomes.
The report further defines three types of SME’s based on the type of people involved their capital and income generating activities:




2.2.1.1 Subsistence small and micro enterprises.
These enterprises have their productivity so low that they only manage to generate enough income for immediate consumption. They work on the basis of ‘getting by’. They constitute about 70% of the total in the sector, in Kenya.
2.2.1.2 Simple accumulation small and micro enterprises.
These generate income sufficient to cover their activities, although without enough surplus to permit capital investment. This segment is more fluid and represents a transitional phase towards one of the other two types it covers a moment in which a micro enterprise begins to evolve its production towards growth, when the trader can cover costs although still has no capacity for growth or investments. However it can also be a step in the productivity decline.
2.2.1.3 Broad accumulation small and micro enterprises.
These are enterprises with sufficient productivity to accumulate a surplus and invest it in the growth of the business it forms a small segment of the whole sector (about 4% of the total). In this there is an appropriate combination of productive factors and commercial positioning, allows the sector to grow with ample profits.
Beaver(2002), in his conclusion of the issue of small and micro enterprises definition and classification, realized that it’s a complex one and he encouraged readers to use their innate business and common sense to dictate suitable criteria that are helpful in a given sector or operating context.
2.2.2 The level of literacy
Education and skills are needed to run a business. Majority of people carrying out SME’s in Kenya are not quite well informed in terms of education and skills. According to King and McGrath (2002), those with more education and training are more likely to be successful in the sector. The literacy level was reflected in their ability to carry out managerial routines. The routine includes making decisions on financial investment and management. This affects the decision on the external funding of his enterprise
The low literacy levels of the SME’s owners are evidenced by the declining levels of the primary and secondary school enrolment of students in Kenya. This makes an entrance to the ‘the juakali sector ‘increasingly the last resort for the disadvantaged students with relatively low levels of education.
At the site, www.ilo.org, it’s observed that an entrepreneur’s level of education is directly correlated with his ability to make financial decisions of his business. Kenya’s declining level of education has, had negative impact on entrepreneur’s ability awareness on how and where to get loans to improve their businesses.
With low ability to read and write, therefore an entrepreneur is at a disadvantage in the loans market. Information on availability of loans, and the rate of interests charged, is communicated through newspapers, in which a good level of literacy is required to read and interpret.
Saleemi (1997) explains that; complete, accurate and precise information is necessary for financial decisions including obtaining business loans. The literacy level is again observed in the ability to have appropriate book keeping skills. The banks often demand cash flows and other financial records as a prerequisite for approving of credit.
Due to low literacy levels most SME traders are unable to differentiate the loan products offered by the financial institutions. Also since most of these services are offered in banking jargons, most traders are discouraged from applying for the loans. Further inadequacy in financial management skills and strategic planning put the SME’s in a disadvantaged position in competing with a large firms which are run by well educated professional managers.
2.2.3 Interest rates on loans.
Every business needs financing, even though at first glance it might appear that funding is unnecessary. Its important that financing be as efficient as possible, Stutely(2003). Stutely , argues that the borrower should be able to put the cost of all financing on the same basis, comparing them and come up with the one that gives the lowest cost financing option.
Banks have often been criticized for having high interest rates charged on loans. But sometimes, there are factors beyond their control. For example the amount of interest payable on loans depend on interest rates charged, which is driven by the base lending rate of interest set by the Central Bank of Kenya. The amount of interest rate charged is sometimes, intertwined with the security of the loan, and the use for which it’s to be used, or the nature of the business. That is the more secure loans are charged low interest rates due to, their low risks involved, Management (July, 2008). This leads the SME’s to the micro finance institution, who lend unsustainable interests short term loans. The high interest rates, discourages the entrepreneurs in this sector from borrowing. Its because the interest payment come out of profit and can be reduced by the borrowing business if profit and trading conditions are unfavorable. A loan does not carry ownership right, if a trader is unable to meet the loan and the interest repayment then bank or lender may decide to foreclose on the business and appoint a receiver to take day to a day running of the business. the receiver has to decide whether the business is able to continue trading under its guidance and generate enough cash to pay , the creditors or whether the business should be closed, the assets sold off and the cash generated used to pay the bank and the creditors. This may discourage business people who may fear such situations to happen to their businesses. Another contributing factor to discouraging interest rates, is the structural weakness inherent in Kenyan banks. They do not have stable source of funding, they can only lend on short term basis. Apart from becoming a problem to SME’s who seek funding over a number of years, the lending rate is high since the banks may lack stable financial source. All this contribute to the rate being a constraining factor in accessibility to credit among the SME’s.
2.2.4 Collateral.
Formal banking institutions always demand collateral to act as a security on loans. This is often in the form of houses or deed to some immoveable assets. This precondition plays a major part in the accessibility of loans among the SME’s since majority of they cannot attain these requirements. The situation may be more complicated for women entrepreneurs, who may not have right of ownership to expensive property including land and houses.
In the site www.allbusiness .com, collateral is again highlighted as a major constraint to credit accessibility. In a survey conducted at the site 92% of the firms surveyed had applied for loans, and were rejected while others had decided not to apply since they ‘knew’ they would not be granted for lack of collateral. Therefore, while most of the entrepreneurs, in this study recognized the importance of loans in improving their businesses, they cited collateral as a major impediment to loan accessibility and therefore business growth. Almost all respondents started their businesses from their own savings or loans from relatives since they did not demand security.
Beaver (2002), explains that the historical development and the associated culture, of the banking system underpins the problem of the emphasis on the provision of collateral as a primary condition in lending. Banks have always adopted a risk averse stance towards small firms, with an accompanying inability to focus on the income generating potential of the venture, when analyzing the likelihood of loan repayment.
Therefore, although there has been a considerable progress in the lending to the SME’s, banks remain cautious because many these businesses have neither, collateral nor, asset registers.
2.2.5 The number of lending institutions.
The number of financial institutions offering credit services to SME’s is a constraint to the development of the sector. In a study conducted in the site, www.allafrica.com, by a non profit organization, World Women Banking providing credit access to poor women, fewer than 2% of low income entrepreneurs, world wide have access to credit facilities. It was further noted that the banking sector penetration in a typical sub-Saharan African country stands at 1% of GDP, far below far below a more advanced such as Brazil where penetration approaches 25% or industrialized nation where its 85%.
In Kenya, there are less than 50 commercial banks serving a population of 34 million people. Among the major commercial banks and other market share includes, Commercial bank(14.7%), Barclays (14.26%),and Standard Chartered(8.4%), there are also banks classified as small which as small banks which includes; Consolidated, Habib, Victoria, Equatorial Fidelity Bank among others.
Just 60% of Kenyans have access to banks or microfinance institutions with 30% of rural users having no access to banking services at all, according to the data by Financially Deepening Kenya (FSD),Business Daily(may 6 2009) this further shows shortage in supply of financial services including credit compared to demand.
Recently, this increase in demand for this services has lend to emergence of mobile telephone money transfer services with the introduction of the M-pesa and Zap services by mobile telephone companies ,safaricom and Zain respectively. With over 6.1 million subscribers, the M-pesa is becoming an important financial transaction tool for SME’s with the un banked even turning it into a banking institution. While the service has it is currently, can not offer credit service the banks are adopting the system in order to attract the small entrepreneurs, who require micro finance products including loans. The growth of mobile money transactions shows the demand for formal financial services including credit services far outstrips the supply.
In Meru town, the concentration of banking services is even much lower with few branches of the major banks operating. The other lending institutions operating include the micro finance companies.
Wanjohi and Mugure (2008), in acknowledging that credit sources remain a major challenge among the SME’s, found out that, in the climaxing of the year 2008, money lenders in the name of ‘pyramid schemes’ came up promising hope among the small investors that they can make it to financial freedom through soft borrowing. The rationale behind turning to these schemes among a good number of entrepreneurs is to seek source of credit which is not available among the formal financial institutions.
2.3 Review of analytical literature.
2.3.1 The level of literacy.
The low levels literacy is working against the growth of the sector. For example due to this , including low levels of business knowledge, there are no association representing the SME’s in this region.low literacy levels leads to poor communication within the sector, and externally and makes it difficult to undertake campaigns, or lobbying for better loan services. Information flows among the different actors in the sector are quite in adequate. Due to low literacy levels again there is no organization in charge of promoting and providing, incentives for the creation of the type of the information exchange needed between the borrowers and the lenders in the sector. Therefore, the entrepreneurs in this sector should lobby for the creation of such an organization to fight for their welfare.
Weaknesses in the information and knowledge flow in this sector therefore, translate into greater difficult in the communication and information provision, on the source and the type of credit available.
SME’s informal nature increases their vulnerability in contract relationships with their lending institutions as the entrepreneurs are uninformed contract laws pertaining to credit. There’s therefore a perpetuated vicious cycle of among the SME’s with regard to information and literacy levels. Low literacy levels produces low levels of information and the low levels of information tend to legitimize the ignorance on the type and source of the loan service in the market.
2.3.2 The interest rates on loans.
As a factor affecting accessibility of credit the interest rate charged, on loans ranks high. It also affects the rate of repayment of the loans leading to high rate of default on loans. banks have been criticized for overcharging their clients by setting high interest rates. Most of these interest rate range from 18-20%. With poor business performance worsened by the global economic depression, most businesses are not only unable to repay their current loans but are discouraged from accessing more credit.
Close monitoring of the lending institution by the central bank is required to avoid escalation of interest rates which discourages growth of the sector by reducing the accessibility of credit. The government should also increase competition in the lending sector by creating a fund exclusively for the micro finance institutions. And create a microfinance department within the central bank, instead of being lent by the commercial banks. This will enable them to borrow at competitive rates. It will enable them to; end at lower interest rates and increase available of loans as they pass the benefits to their clients.
2.2.3 Collateral.
According to Wikipedia, in their definition of an SME, among other factors, lack of collateral is highlighted as one of the key elements, of the business in this sector. Due to this as well as a verifiable credit history, most are therefore unable to access credit.
The situation has led to the advent of micro credit in this sector, where minimal collateral is required as a basis for granting loans. The concept is considered an innovation of Grameen Bank in Bangladesh. In that country it has largely helped the sector to grow by accessing the credit with minimal security requirements. In Kenya, the concept is also developing and should be strengthened by encouraging the growth of the MFI’s who finances SME’s without collateral requirements.
2.2.4 The number of lending institutions.
The number of lending institutions and their network of branches is a challenge to the accessibility of loans among the SME’s. a wide branch network enables a financial institution to have lower cost of funds. The cost of funds being the amount paid by the banks for its liabilities, including the loans it borrows from other financial institutions. Banks take loans from other financial institutions inn order to lend to the customers where their deposit base is insufficient to cover the amount lent. But a wide branch network bring with it , significant operating expenses in the forms staff costs and structures, Business Daily, may 18, 2009.
The few available lending institutions are unable to channel the credit services widely due to the costs involved. To avoid this Central Bank has embarked on an effort that could see commercial banks allowed to use agents, a model that is popularly known as branchless banking. It is estimated that the cost of putting up a small branch is between kshs7m-20m, which equivalent to recruiting 50 agents, each of which can serve tens of thousands of entrepreneurs. This way the banks can capture billions of shillings worth of transactions that are in the informal sector, as well as disburse more loans which they are currently unable to.

2.3 Research gaps to be filled by the study.
There is evidence from the review of both the theoretical and the analytical literature that research gaps exist. Past researchers have concentrated on factors affecting accessibility of credit among the SME’s, in the traditional financial transactions. However modern trends in the financial transactions have brought about different ways in these operations. An example is the mobile telephone money transactions by the unbanked traders. The study will therefore Endeavour to why they are unable to only access normal banking services but credit services offered by the financial institutions.












CHAPTER 3
3.0 RESEARCH DESIGN AND METHODOLOGY.
3.1 Introduction.
The area of interest in this chapter will include; dsign of the study, target population, sampling design and procedures, and also how the research finding will be presented.
3.2 Research Design.
The researcher used descriptive research, in his aim to achieve the objective of the study. The research method is defined as a process of collecting data in order to answer research questions concerning the current status of the subject of the study. This method determines and reports the way things are. It attempts to such things as possible behaviour, attitudes, values and characteristics, Mugenda (2003). That is why it was the choice of the researcher since it will describe the small and micro enterprises as they are within the meru CBD and also the factors that prevent them from accessing the credit facilities. Questionnaires were used to select samples for observation and analysis, in order to estimate and interpret the actual population characteristics.
Both qualitative and quantitative data was obtained which required statistical techniques to analyze and present he results.
3.3 Target population.
The target population in this study referred to all the entrepreneurs within he town CBD, who run SME’s. For the purpose of this study an SME was described as any business with an annual turnover of under kshs 5 million. The researcher was unable to obtain the exact number of SME traders in the meru CBD, since there is no existing database, as most of them are neither registered nor licensed by the local authorities. However sources at the local authorities estimated that there are over 500 hundred registered SME’s in the area of study. Due to financial and time constraints the researcher could not collect data from every entrepreneur in the study. Therefore, a randomly selected sample size of 50 SME’s were selected from across every street to maintain objectivity. The SME’s so selected were representative enough of the study population to form the subject of the study.
3.4 Sampling Design and Procedures.
Due to the fact that SME’s are widely distributed virtually in all sections of meru CBD and offering different products and services, simple random sampling was found to be more appropriate in obtaining data compared to other methods. In this a number was given to every member of interviewees because some questionnaires were administered orally to less literate traders. The questionnaires contained both open ended and closed ended type of questions. In the closed ended type of questions, all possible alternatives from which respondents selected the answer that best described the situation were provided. The open ended type gave the respondents the choice to respond in their own words.
Both methods were found to be advantageous. For closed ended questions they were easier to analyze since they are in an immediate usable form, economical and easier to administer. Open ended question also gave the respondent freedom to respond giving greater depth of response; it gave insight to the feelings of the response among other advantages. Therefore the researcher found these instruments to be very appropriate for the study.
3.5 Data collection instruments and procedures.
The researcher used interview schedule to obtain data from the respondents. The method was preferred because the face to face encounter encouraged the respondents to be more co-operative in providing the information. Among other advantages included ability to obtain in-depth data than with the use of other methods, clarify and elaborate the purpose of research among other s.
In combination with this method questionnaires were also used. The questionnaires contained a list of simple, structured questions, chosen after considerable testing for the purpose of obtaining reliable information from the respondents. There was a need for using a combination of questionnaires and finally the data was presented in bar graphs and pie charts.
3.6 Data Analysis Procedure and Presentation.
Statistical data analysis techniques such as Ms. Excel and SPSS were used in the analysis of the information obtained. Farther, both qualitative and quantitative data analysis techniques were used in order to help the researcher to bring out the information clearly. These analysis enabled patterns and relationship to be formed which were not apparent in the raw data. A sampling frame of fifty enterprises was obtained from the list of the registered enterprises from the local authorities. The enterprises were allocated numbers. The numbers were then placed in container and were picked at random; the subjects responding to numbers picked were included in the sample. The subjects were then interviewed and although the business type varied the constraints faced by them were similar and therefore there was objectivity in using the methods on the different business types.






CHAPTER 4
1.0 DATA ANALYSIS AND PRESENTATION OF FINDIGS.
4.1 Introduction to Data Analysis.
The purpose of this chapter is to account for the finding of the research, its presentation, interpretation and analysis. The analysis of the data was done using both the quantitative and the qualitative methods and presented in tables, bar graphs and pie charts. All the findings are wholly based on the responses obtained from the respondents. The main objective of the study was to investigate factors that affect accessibility of credit facility among the small and micro enterprises.
4.2 Quantitative analysis
The researcher distributed fifty questionnaires to the respondents. The response was good and 48 of the questionnaires were returned and were found to be useful for data analysis. The figure represented 96 % response rate which was considered to be representative and therefore acceptable for the analysis.








Table 4.1 represents a distribution of the various businesses representing the sample.
Business type No of respondents Percent frequent
Hardware shops. 6 12.5
Chemists 8 16.6
Hotels 5 10.4
Bars 4 8.3
Salon and Berber 4 20.8
Super markets 10 8.3
Agro business 8 16.6
Book shops 3 6.3
Source; Author (2009)
The pie chart 4.1 represents the distribution of the respondents according to the business type.
Fig. 4.1 Distribution of the respondents according to the type of business.

Source; Author (2009)

From fig. 4.1 There was a fair distribution of the respondents of the respondents according to the type of the businesses. The distribution ranged from a low of 6.3%, represented by the Bookshop of businesses, to a high fig of 20.8% which was represented by salon and Berbers.
4.2.1 Gender response rate.
The respondents were analyzed on the basis of the gender. The results were presented in table 4.2
Table 4.2 Gender response rate.
Gender No. of respondents Percentage proportion
Male 26
Female 22
total 48
Source; author 2009
From table 4.2, 54% of the respondents were males while 46% were females. Majority of the respondents were male owners of the business.
Fig.4.2 gender response rate.

Source; Author (2009)
4.2.2 Age bracket of the respondents.
The ages of the respondents were studied and analyzed as shown in the table 4.3
Age brackets No. of respondents. Percent distribution.
20-25 7 14.6
26-30 8 16.7
31-35 14 29.2
36-40 10 20.8
Over 40 years 9 18.7
Total 48 100
Source; Author (2009)
Fig. 4.3 Ages of the respondents.

Source; Author (2009).
From the data presented in the fig.4.3 majority of the respondents were between the ages 31-35 representing 29.2% of the respondents. The other age groups were represented by the following percentages in decreasing order; 36-40; 20.8%, over 40years; 18.7%, 26-30;16.7% and
20-25; 14.6%
4.2.3 Level of education.
The results from the level of education was found as shown in the table 4.4 and fig. 4.4
Table 4.4; level of education.
Education level No of respondents Percent distribution
Below standard 8 8 16.6
Primary school. 17 35.5
Secondary school. 13 27.1
College and university. 10 20.1
Total 48 100
Source: Author (2009).
Fig. 4.4 Level of education.

Source; Author (2009)
The presentation in the fig.4.4 shows that majority of the respondents fall in the primary school level of education, with 17 respondents representing 35.5% of the total. Following in decreasing order, are the other type of respondents based on their level of education:
Secondary school; 13 respondents (27.1%), college and university level; 20.1% and below standard 8 level at 16.6%
4.2.4 Amount of start up capital.
The researcher also sought to find out the start up capital of the respondents. The data is shown in the table 4.5
Start up capital No. of respondents percentage
Below 50,000 16 33.3
51,000-100,000 11 22.9
101,000-150,000 8 16.7
151,000-200,000 6 12.5
201,000-250,000 4 8.3
Above 250,000 3 6.3
Total 48 100
Source; Author (2009)
Fig. 4.5. Amount of start up capital.

Source; Author (2009)

From table 4.5 and fig. 4.5 majority of the businesses (33.3%) started their businesses with low capital (below ksh.50, 000). The percentage of the respondents decreased with the increase in the start up capital as shown; 51,000-100,000 at 22.9%, 101,000-150,000; 16.7%,151,000-200,000;12.%, 201,000-250,000 were 8.3 % while those with start up capital of above 250,000 were only 6.3%.
4.2.5 The source of start up capital.
When the respondents were asked on the source of their start up capital, the response was as shown in table 4.6
Table 4.6 the source of start up capital.
Sources of start up capital. No. respondents. Percentage
Respondents.
Personal savings 16 33.3
Family members 20 41.7
Bank loans 8 16.7
Other 4 8.3
Total 48 100
Source; Author (2009)
Fig. 4.6 The source of start up capital.

Source; Author (2009)
Fig 4.6 shows that majority of the respondents started their businesses with money borrowed from their families. This was represented by a high figure of 41.7% of the respondents. The next major source of start up capital was from personal savings at 33.3%. Bank loans were represented by only 16.7% of the respondents. Sources of capital other than the above were lowest at 8.3%.
4.2.6 Views on the interest rate charged by the financial institutions.
The researcher farther asked the respondents to state their views on the interest rates charged by the various financial institutions. The findings are as shown in table 4.7
Table 4.7 views on interest rates charged by financial institutions.
Institutions Interest rates Percentage frequency
high medium low total
Banks 26 12 10 48 54.2
MFI’s 20 16 12 48 41.2
SACCOS 18 15 15 48 37.5
Informal lenders 16 14 18 48 33.3
Source; Author (2009)
Fig. 4.7 Views on the interest rate charged.

From fig. 4, it’s shown that 54.2% of the respondent’s banks charged high interest rates followed by MFI’s at 41.2%. SACCOS and Informal lenders charged 37.5% and 33.3% respectively.
4.2.7 Preferred source of finance for the expansion of business.
The researcher also sought to investigate the preferred source of finance for expansion. The result were as shown in Table 4.8
Table 4.8 Preferred source of finance for the expansion of business.
Source of finance No. of respondents Percent. frequency
Bank loans 4 7
MFI’s 10 21
SACCOS 6 13
Family members 8 17
Personal savings 20 42
Total 48 100
Source; Author (2009) Presentation of the data can be shown in figure4.8
Fig.4.8 Preferred source of finance for expansion of business.

Source Author (2009)
The result from figure 4.8 shows that most of the SME’s would prefer to use personal savings in expanding their businesses. This is shown by a value of 42%.The next best source would be the MFI’s at 21%. Family members and SACCOS follow at 17% and 13% respectively. Bank loans would be preferred by the least number of respondents 7%.
4.2.8 Professional training acquired.
The respondents were also asked what professional training they had that related to business. Table 4.9 shows how they responded.
Fig. 4.9 Professional training acquired.
Professional training. No. of respondents. Percentage no. respondents.
Management 2 4.2
Book keeping 3 6.1
Entrepreneurship 2 4.2
Accounting 2 4.2
None 38 79.2
other 1 2.1
total 48 100
Source; Author (2009)





Fig. 4.9 shows presentation of the data.
Fig. 4.9 Professional training acquired.

Source; Author (2009)
The results from fig 4.9 shows that majority of the respondents (79.2%) have not had any formal training in business. Very few respondents had training in Accounting, Management, Book keeping, and Entrepreneurship, which is shown by the following respective percenatages; 4.2%, 4.2%, 6.1% and 4.2% respectively. Two percent of the respondents had training remotely related to business.
4.2.9 Reading newspapers and other financial publications.
Another question the respondents were asked was how often they news papers and other financial publications. The results are as shown in table.4.10
Table 4.10 Frequency in reading newspapers, and other financial publications.
Opinion frequency Percent frequency
Very often 8 16.6
Often 15 31.3
Rarely 25 52.1
Total 48 100






The data is presented in fig.4.10
Fig. 4.10 frequency of reading newspapers and other publications.

Source; Author (2009).
Majority of the respondents (52.1%) rarely read newspapers and other financial publications, as shown in table 4.10. those who often, and very often, read these publications, were 31.3% and 16.6% respectively.
4.2.10 Fear for borrowing loans.
When asked whether they had fear for borrowing loans, the response as shown in table 4.11
Table 4.11 Fear for borrowing loans.
Fear of loans frequency Percent frequency
Yes 30 62.5
No 18 37.5
Total 48 100
Source; Author (2009).


The information is presented in fig.4.11
Fig. 4.11 Fear of borrowing loans.

Source; Author (2009).
The information obtained shows that the majority of the respondents (62.5%) had a fear for borrowing loans, while 37.5% did not experience any fear when borrowing loans.
4.2.11 whether the education level, would affect the loan application request.
Results were also obtained from the question of how education affected the loan application, and they are as shown in table 4.12

Table 4.12 whether education affects the loan application
Opinion. Frequency. Percent frequency.
Yes 28 58
No 20 42
total 48 100
Source; Author (2009)
The results are presented in fig.4.12
Fig.4.12 whether education level affects loan application.

Source; Author (2009)
There were more respondents who answered ‘YES’ to the question of whether education would affect their request for a loan. The frequency was at 48% compared to 42%, who thought education had no effect.
4.2.12 Assets ownership
The researcher also investigated on the assets the respondents had title of ownership. The response obtained is shown in table 4.13
Table 4.13 Ownership of assets.
Opinion on assets. Frequency of respondents. Percent frequency.
Land. 6 12.5
House. 4 8.3
Vehicle. 2 4.2
None. 35 72.9
Other. 1 2.1
Total. 48 100
Source; Author (2009).
The data was then presented as shown in fig.4.13

Fig. 4.13 Ownership of assets.

Source; Author (2009).
According to the results obtained many of the respondents did not have title of ownership of the assets indicated. This was shown by a value of 72.9%. Those owned either a house, vehicle, land, or other assets were represented by 8.3%, 4.2%, 12.5% and 2.1 percent respectively, which were small percentages.
The researcher also sought to find out whether the respondents had their application for a loan rejected. The results were as shown in table 4.14
Table4.14 Rejection of loan application for lack of collateral.
Opinion frequency Percent frequency
Yes 28 58
No 20 42
Total 48 100
Source; Author (2009)
The data was presented in the fig.4.14

Fig. 4.14 Rejection of loan application

Source; Author (2009)
As indicated in fig 4.14 majority of the respondents had their loan application rejected at one time at one time. This is shown by a value of 58% of the respondents, with those whose loan application had not been rejected being 42% of the total.
4.2.14 the number of financial institutions offering credit facilities.
The respondents were also asked on the number institutions that they knew offering credit facilities. The results are shown in table 4.15
Table 4.15 the number of financial institutions offering financial services.
Opinion frequency Percent frequency
Very many 8 16.7
Many 12 25
Few 28 58.3
total 48 100
Source; Author (2009)

The data obtained was the presented in fig.4.15
Fig. 4.15 the number of financial institutions offering credit facilities

Source; Author (2009)
From fig 4.15 it can be shown that many of the respondents were of the view that there were few financial institutions offering credit facilities. This was found to be 58% of the total respondents. Those who there were ‘many’ or ‘very many’ were 25% and 16.7% respectively.
4.2.15 licensing of more financial institutions
The researcher sought to find out on the need for more financial institutions offering credit facilities to be licensed. The result were as shown in table4.16
Table 4.16 Licensing of more financial institutions.
Opinion No. of respondents Percent frequency.
Yes 31 64.6
No 17 35.4
total 48 100
Source; Author (2009).

The data was shown in fig 4.2.16
Fig. 4.2.16. The need to license more financial institutions.



Source; Author (2009)
As shown in the figure 4.2.15, clearly majority of the respondents were of the view that increasing the number of financial institutions would increase borrowing by the traders. This was 64.6% compared to 35.4% who thought otherwise.
4.3.0 Qualitative data analysis.
This section contains the analysis of the data that could not be quantified.
4.3.1 Importance of business training when seeking a loan.
Of the respondents who had training I either management, accounting, management, entrepreneurship, book keeping and others, the researcher sought to find out their explanation on how it has helped them in acquiring loans. Majority were affirmative that the training courses helped in influencing the bank authorities to process their loans. Those with book keeping skills were able to present properly prepared records such as financial transaction records and business proposals. Accounting, entrepreneurship and management training they said gave the financial institutions confidence that the funds would be well utilized and repaid in time.
4.3.2 Lack of understanding of the loan process.
Majority of the respondents expressed fear for borrowing of loans. The researcher investigated whether the loan application process was the reason. The respondents explained that the loan application process was lengthy, with a lot forms to fill, which discouraged them.
4.3.3 Explanation on how lack of collateral is a constraint to loan application.
The respondents were asked to explain how lack of collateral was constraint to loan accessibility. Majority of them thought it to be a major constraint. They explained that the financial institutions placed a lot emphasis on the requirement for collateral before a loan could be processed. Farther they did not have title of ownership for such assets as demanded by the financial institutions.
4.4 Summary of the data analysis.
The distribution of the respondents according to the type of business follows; Salon and Berber shops;20.8%, Chemists, 16.6%, Agro business shops;16.6%, Hardware shops;12.5%,Hotels;10.4%Bars;8.3%, Supermarkets; 8.3% and Book shops;6.3%.
Majority of the respondents were males with a value of 54% . in terms of age those represented with highest percentage were at between the ages of 31-35 years at 29.2%. the ages between 36-40, 26-30, 20-25, and over 40years, had 20.8%, 16.7%, 14.7% and 18.7% respectively.
Out of all respondents, 35.5% had primary school level of education, 27.1% secondary school level, 20.1% had college and university level, while 16.6% had below primary school level f education.
The source of start up capital of the respondents varied; with 41.7% having been financed by family members, 33.3% from personal savings, 16.7% from bank loans and only 8.3% from other sources. Of these sources only 6.3% were of above ksh.250, 000, 33.3% were below kshs. 50,000 ,22.9% were between kshs.51,000-kshs.100,000, 16.7% between kshs.101,000-kshs.150,000, 12.5% between kshs.151,000-kshs.200,000, while 8.3% started with kshs.201,000-kshs.250,000.
Majority of the respondents (54.2%), were of the view that banks charged high interest rates. This was followed by, MFI’s, SACCO’s, and informal lenders at 41.2%, 35.7%, and 33.3% respectively.
Forty percent of the respondents would prefer personal savings to expand their businesses. Those who would source their expansion funds from MFI’s were 21.%, while family sources, SACCOs and bank loans were 17%, 13% and 7% respectively.
Majority of the respondents had no professional business training (79.2%). The remaining had training skills in business management, book keeping, entrepreneurship, and accounting, represented by4.2%, 6.1%, 4.2% and 4.2% respectively. Those with other non business related training were only 1% of the total.
Fifty percent rarely read newspapers and other financial publications. Only 31.3% often read and 16.6% very often. Majority at 62.5% feared borrowing loans, while 37.5% did not. Also 58% of the respondents thought their educational background was constraint to application loans.
Majority did not own assets, as shown with a value of 72.9%. Those who owned land, house, vehicle and other assets were 12.5%, 8.3%, 4.2% and 2.1% of the total.
Fifty eight percent had at one time experienced a rejection of loan application due to lack of collateral, while 42% had not. Fifty eight of the respondents thought the number of institution offering loan facilities were few. Those who thought they were many and very many were 25% and 16.7% of the total. Sixty four percent of the respondents thought there need to license more financial institutions while 35.4% thought there no need.
The loan application process was also thought to be discouraging to the respondents. Majority said it was lengthy and complicated. Many of the respondents also were of the view that collateral demanded by the banks discouraged them from borrowing.


















CHAPTER FIVE
5.0 SUMMARY OF FINDING, CONCLUSIONS AND RECOMMENDATIONS.
5.1 Introduction.
This chapter summarizes the major findings, recommendations, conclusions, answer to research questions and room for farther studies.
5.2 Summary of the major findings.
From the research done several findings emerged from the 48 respondents. It was found out that majority of the small and micro enterprises, operating in meru are owned by males i.e. 54%.
The distribution of the business types was fairly uniform. Though there was a thin majority of Berber shops and salons at 20.8%. Majority of the business people operating the SME’s, at 29.2%, are between the age 31-35 years. It emerged that many of the respondents, only had primary school level of education as shown by a figure of 35.5%. Many of the respondents had started their businesses with capital from family members i.e. 41.7%. These start up capital were low with majority (33.3%) having started with less than kshs. 50,000.
Many of the respondents, at 54.2%, were of the view that financial institutions charged high interest rates on loans. Forty two percent of the respondents would prefer personal savings to other sources of finance to expand their businesses. The data collected showed majority of the respondents 79.2% did not own any asset such as land, vehicle or house. Fifty eight percent of the respondent had at one time experienced a rejection of a loan application request due to lack of collateral. Many of the respondents (58.3%) thought the number of institutions offering loan facilities were few. Sixty percent of the respondents therefore thought, there was need to license more lending institutions.
Majority of the respondents were discouraged by the loan application process, and thought it was and complicated.
Lack of collateral was a major issue with the majority of the respondents, as they thought it was a constraint to accessing of loans.
5.2 Answers to Research questions.
5.2.1 Does the interest rate charged on credit facilities affect the accessibility of credit?
Fifty four percent of the respondents were of the view that the banks charged high interest rate. This made many of the respondents (42%) to avoid bank loans and prefer personal savings if they would seek to expand their business. Clearly, the above data shows that the interest rates charged by banks on loans are high and have a negative effect on the accessibility of credit facilities to the SME’s.
5.2.2 Is there a relationship between literacy levels of borrowers of credit and its accessibility?
The data obtained shows that majority of the respondents,35.5 %, were of the primary school level of education, 79.2%, had no professional training and due to low literacy level,52.1 %, rarely read newspapers and also 58% thought their education background would be a constraint to application of a loan.
From the above data its clear that the literacy level of the business person affected his accessibility to credit facilities since most financial institutions advertised their services in publications which they rarely read. Most institutions also insist on well written business proposals and business records which most could not keep because, of low levels of literacy. Also the lengthy loan application procedure could pose a challenge and discourage the less literate loan applicant. Because of the failure to understand the loan application process majority also expressed fear for loans.
5.2.3 Does the number of credit lending institutions affect the accessibility of loans?
It was clear also from the findings that the number of financial institutions, offering credit services was few, as attested by 58.3% of the respondents. Farther, 64.6% of the respondents thought there were need to license more financial institutions offering credit facilities. This shows there is a higher demand for credit facilities than supply. Therefore majority of the businesses are unable to access credit because the institutions offering these facilities are few compared to the need for the services. When the numbers of financial institutions offering these services, are few the business people resort to personal services, and family members as sources of finance this is shown by 42% of the respondents.
5.2.4 Does the demand for collateral by the financial institutions affect accessibility to credit?
This was shown to be one of the major factors affecting accessibility to credit facilities among the SME’s. Seventy two percent of the respondents owned no respondents owned no land, vehicles or houses which are some of the major assets required by financial institutions as collateral. Due to this were unable to access credit facilities. And since 58% of the respondents had at one time experienced a rejection of loan application due to lack of collateral, the data showed clearly the demand for collateral was a major constraint to credit accessibility among the SME’s.


5.3. Conclusions.
From the finding, it can be concluded that literacy, the number of credit lending institutions available, interest rates charged on loan and the demand for collateral affect accessibility of credit facility among the SME’s. Due to low level of literacy few read news and financial publications where these services are advertised. They feared the loan application since they did not understand the process. High interest rates charged by banks lead them to prefer personal savings and family sources of income. Since majority did not own assets they could not provide collateral for loans which is requirement to access loans. Majority of the respondents thought there were less financial institutions, compared to demand for loan facilities. Therefore, most respondents resulted to other sources of finances.
5.4 Recommendations.
For effective accessibility of credit facilities to the SME’s the following recommendations were made;
1. Licensing of more financial institutions. There is need for the government to relax the requirements for starting of lending institutions.
2. There should be incentive to encourage growth of MFI’s which cater for the SME’s sector. This can be encouraged by a reduction of taxes levied on services.
3. Reduction of interest rate by banks. Tax holidays and rebates can be used to encourage the banks to lower the interest rates o loans targeted at SME’s.
4. A national business policy that recognizes the importance of small businesses. Such a policy should encourage starting of short duration business training targeting the SME’s which would reduce the literacy in this sector.
5. Formation of business groups. Small businesses should be encouraged to form groups in a bid to guarantee each other.
5.5 Room for farther research.
1. The researcher dealt with only the above four factors that affect accessibility to credit facility
2. There is need to use other method of study to see whether the same result can be realized.
3. This research was concentrated on the meru CBD, there is need to have a wider research on the topic covering a wider area to compare the findings.

















REFERENCES
1. Beaver, (2002). Small Business Entrepreneurship and Enterprise Development. London. 3rd Edition. Pearson Education publishers Ltd.
2. Besterfields, G. et al (2008). Total Quality Management.3rd Edition. Pearson Education Publishers Ltd.
3. Hussain, A. (1985). Business Finance. Nairobi. East Africa Education Publishers.
4. Kamau, J (2009).’Challenges Facing Small and Micro Enterprises in Kenya’. Daily Nation. Pp31.
4. Mannasseh, P.N (2004).A Text Book of Business Finance. 3rd Edition. Nairobi. McMore Accounting Books.
5. McGrath, S. and King, K (2002). Globalization Enterprise and Knowledge. London. Oxford University Publishers.
6. Muchiri, G.’ the Need for Change of Strategies in the Management of Small Businesses.
7. Mugenda, O. and Mugenda, A.G. (2003). Research Methods: Qualitative and Quantitative Approaches.Nairobi.Acts Press.
8. Mugure, A. and Wanjohi, A.M. (2008) Factors Affecting the Growth of SME’s in the Rural Areas of Kenya: A case study of ICT firms in Kiserian Township Kajiado District Kenya. Kenya Literature Bureau.
9. Saleemi, N.A (2007) Economics Simplified. Nairobi.Saleemi Publications Ltd.
10. Saleemi, N.A. (1997). Business Communication and Report Writing. Nairobi. Saleemi N.A. Publishers.
10. Stutely, R. (2003). A guide to Business Finance. London. Pearson Education Ltd.
11. Website, (2007).www.businessheadlinesindia.com
12. Website, (2001).www.wikipedia.com
13. Website, (2004) www.allbusiness.com





















APPENDICES
APPENDIX II
Questionnaire:
The purpose of this Questionnaire is to seek answers to seek answers to factors affecting accessibility to credit facilities among the Small and Micro Enterprises within the Meru CBD.
NB: Confidentiality on the information which the respondents will provide is guaranteed, and will be used for academic purposes only.
Section A (optional) Bio Data.
1. Name of the business person………………………………………………………….
2. Name of the Business…………………………………………………………………
3. Physical address………………………………………………………………………
4. Age of the business person (yrs.) (tick appropriately.)
Between 20-25
Between 26-30
Between 31-35
Between 36-40.
Over 40yrs.

1

5. Sex
Male.
Female.

6. Highest level of Education.
Below standard Eight.
Primary School level (KCPE)
Secondary School level (KCSE).
College and University level.

SECTION B (Please answer all questions.)
7. How much was your start up capital?
Below 50,000.
51,000-100,000
101,000-150,000
151,000-200,000
201,000-250,000
Above 250,000
8. a. Among the following which was the source of your start up capital?
Personal savings
Family members
Bank loans
2
Other
8b, the table below contains the various types of financial institutions. What is your view of the interest rates charged by each.(please tick appropriately.)

Institutions High Medium low
Banks
Saccos
MFI’s
Informal Lenders
9. If you were to expand your business today which would be your preferred source of finance?
Bank loans
MFI’s
SACCOS
Family Members.
Personal Savings.
10. a What professional training in business do you have?
Accounting
Management
Book keeping
Entrepreneurship
None
Other. 3.

10. b. How has the above training helped in seeking a loan?...................................................................................................................................................................................................................................................................................................................................................................................................................................
11. How often do you read newspapers and other financial publications?
Rarely
Often
Very often.
12. A Do you have a fear for borrowing loans?
Yes
No
b. If the answer for the above question is ‘yes’ do you think your lack of understanding of the loan process is the reason. Please explain………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
13.a Do you think your level of education would affect your loan application request?
Yes
No
b. If yes explain how?
4
14. which of the following assets do you have title of ownership?
Land.
House
Vehicle
None
Other
15. Has your application ever been rejected for lack of collateral?
Yes
No

16. Do you think lack of collateral is a major factor that can prevent you from accessing a loan?
Yes
No
Explain……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
17. How many financial institutions offering credit facilities do you know?
Few
Many
Very many
5

18. Do you think licensing more financial institutions would increase borrowing?
Yes
No
19. How do you rate the ratio of the number of lending institutions to the number of borrowers?
Very low
Low
High
Very high.










6.