Commercial Banks Lending Strategies and Growth of Micro and Small Enterprises in Kenya

Abstract

Empirical studies show that MSEs make a significant contribution to the socio-economic and political infrastructure of developed and developing countries as well as the nations in transition from command to market economies. One of the biggest obstacles in MSEs is access to either start-up or expansion capital. Lacking sufficient credit, entrepreneurs are seldom able to take advantage of discounts on new materials, and are unable to extend credit to their customers. Credit and capital have been found to be the greatest perceived needs of small businesses.The study sought to establish how product accessibility, customer relationship marketing (CRM), collaterals, capacity building and technological innovation lending strategies by commercial banks influence growth of MSEs in Kenya. The study also investigated the moderating effect of legal and regulatory environment on the commercial bank lending strategies on the growth of MSEs in Kenya. This study was a descriptive survey design with a population of 2,571,293 registered MSEs in Kenya and the chief credit officers from the 44 commercial banks in Kenya. The bank chief credit officers and MSEs owners were targeted for information by this study because they were likely to be the decision makers. The chief credit officers who were sampled from the headquarters of the commercial banks were actively involved in making lending decisions. The researcher used purposive sampling to select respondents. The sample size which was purposively selected was comprised of 352 respondents. The study used questionnaires to collect data from the field. Both quantitative and qualitative data gathered was coded and analyzed using Statistical Package for Social Sciences (SPSS) computer software. Descriptive statistics was used to analyze the data in frequency distributions and percentages which were presented in tables and figures. Inferential statistics were used to analyze qualitative data. The study found out that commercial banks’ product accessibility have a positive and significant effect on MSEs growth, commercial banks’ customer relationship management have a positive and significant effect on MSEs growth, commercial banks’ collateral have a negative and significant effect on MSEs growth, commercial banks’ capacity building have a positive and significant effect on MSEs growth, commercial banks’ technology and innovation have a positive and insignificant effect on MSEs growth and lastly the interaction between independent variables and legal regulatory environment (moderator) was negative and significantly related. Following the study results, the study concluded that a good relationship between MSEs and banks helps them to easily access finances and information. In addition, the study concluded that commercial banks’ collateral and covenants adversely affect the growth of MSEs it was recommended that commercial banks should ensure that their products are accessible, commercial banks should improve on customer relationship management to enhance the growth of MSEs. Commercial banks need to make credit terms to be friendly to the creditors in this case the MSEs owners. Further the study recommends for commercial banks to train their employees on how to handle clientele needs. Commercial banks need to embark on major training programmes and address their efforts to professionalize MSEs account managers. The study also recommended that commercial banks and MSEs should put in place legal and regulatory framework management strategies.