ROLE OF CREDIT RATIONING ON FINANCIAL ACCESSIBILITY BY SMALL AND MEDIUM ENTERPRISES IN ELDAMA RAVINE SUB – COUNTY, KENYA

Abstract

The micro, small and medium enterprises continue to play a critical role in the development process in developing economies. Therefore they continue to be in the forefront of policy debates not only in developing countries but also in developed countries. In spite of the generally fast pace by which access to financial services for SME is being developed, significant segments of the SME sector do not yet benefit from the expansion and deepening of outreach. Risk based lending continues to gain momentum in Kenya and as a result credit rationing for SMEs is imminent. In attempting to gain access to financial services SME continue to face constraints. Thus this research intended to study the role played by credit rationing on financial accessibility by Small and Medium Enterprises in Eldama Ravine Sub–County in Baringo County, Kenya. A cross-sectional survey research design was used. Stratified random sampling technique was adopted to draw a sample of respondents from the accessible population. This study used a self-administered semi-structured questionnaire to collect data. A pre-testing of questionnaires was conducted before carrying out the main study. This study employed the Cronbach alpha coefficient to test the instrument’s reliability. Content validity test was used for validity test. Data analysis captured both descriptive and inferential statistics. Descriptive statistics included modes, medians, means, standard deviations and variances. The results of the analysis were presented in form of tables, graphs and charts. From the findings the study concluded that: firms with good credit history, older and large enterprises are not denied loans. The respondents further agreed that risky ventures are credit rationed by banks. In most cases firms that offer highly valued collaterals are not credit rationed. The results indicated with reduced credit rationing, financial institutions will ensure financial services are accessible to SME’s. Majority of financial institution would prefer group lending compared to individual. This will have a positive impact on the performance of SMEs.