Strategic Decision Factors Influencing Access to Credit by Women Owned Small and Medium Enterprises in Nairobi County, Kenya

Abstract

The purpose of this study was to evaluate the strategic decision factors influencing access to credit by Women Owned Small and Medium Enterprises in Nairobi County, Kenya. The specific objectives were to evaluate individual and joint effect of characteristics of business owners, networking, collateral and risk management. The moderating influence of legal and regulatory factors on the relationship between strategic decision factors and access to credit by the women owned SMEs was investigated. The research was anchored on four theories that support each variable investigated namely; human capital theory, theory of social capital, resource-based view and new institutional theory. The study was based on the positivist research philosophy, while the research adopted a cross-sectional descriptive research design. The questionnaire formed the main data collection instrument and the same was piloted on 37 firms that did not participate in the final research. The population of the study was 6,145 registered women owned SMEs that operated in Nairobi City County in the year 2018. These firms formed both the unit of analysis as well as the population since only one respondent the owner, was targeted. Sloven’s formula was adopted to arrive at a sample of 375 but to take care of non-responsive firms, a total of 420 questionnaires were distributed. Out of the distributed questionnaires, 370 were successfully filled and collected. The data was tested for normality and on all the measures employed, namely; autocorrelation, multicollinearity and homogeneity, suggest that the data used for analysis was normal. In analyzing the data, the qualitative data was categorized into five themes capturing the four objectives and the moderating factor. The findings reveal that owner characteristics, as proxied by entrepreneurial skills and the owner experience, positively and significantly influenced the capacity of the owner to access credit. The nature of the collateral was equally found to influence access to credit by the women owned SMEs. The information sharing construct was however found not to determine accessibility of credit by the owners. Further, the findings reveal that the ability of women owned SMEs to avail collateral was not enough to guarantee access to credit but rather the type of asset, with immovable assets being the main determining factor. Finally, the results revealed that risk management, which is measured by previous history in loan repayment and the existence of good governance in the firm, had a negative influence on access to credit by women owned SMEs. In terms of the moderating influence of the legal and regulatory environment in the SME sector, the results revealed that an enabling regulatory and legal environment improved accessibility of credit and this implies that tailor made initiatives by the government, such as affirmative action enhanced the ability of the women owned SMEs to access credit. From the findings, it is concluded that one of the ways in which women owned SMEs can improve their credit access is by coming up with strategic decisions that are intentionally aimed at improving the owner and business characteristic, increase collateral base and also develop a network that can become a source of information. The study recommends that the women owned business firms should focus in building internal staff capacity in managing SMEs. All these steps are aimed at reducing the information assymetry. At the same time, the reserach recommends that the governmnet establishes affirmative action finance institution that would use group guarantee financing for more women owned SMEs to access finances for their businesses.