Effects of Credit Accessibility on the Performance of Mse Enterprises in Isiolo County

Abstract

The limited access to informal and formal credit by entrepreneurs has been identified as a major constraint to growth of micro and small enterprises in Isiolo County. The County is also characterized by high level of unemployment, particularly among the youths, nomadic life and low educational levels and all these can be attributed to limited access to credit. This study sought to establish the effects of credit accessibility on the performance of MSE enterprise business in Isiolo North Sub-County. The specific objectives were: to establish the influence of lending procedures, credit awareness, collateral requirements and interest rate on performance of MSE enterprise business in Isiolo North Sub County. It was guided by theory of loanable funds, asymmetry theory and classical theory of interest. The study adopted a descriptive survey research design. The unit of analysis was 225 micro and small enterprises within Isiolo town. The unit of observation was owners of the businesses. The sample size was 144 MSE owners selected using stratified random sampling. Data was collected through structured questionnaires. Data was analyzed using descriptive statistics in order to ascertain the extent of practice of the variables. Pearson’s correlation and regression analyses were used to establish whether there exists any relationship between lending procedures, credit awareness, collateral requirements, interest rates and performance of MSE enterprise businesses. The findings revealed that separately, lending procedures and credit awareness positively and significantly relate with performance of MSE business, while collateral requirements and interest rate negatively and significantly relate with performance of MSE business. The study concluded that when combined, lending procedures and credit awareness positively and significantly influence MSE business performance. On the other hand, collateral requirements and interest rates negatively and significantly influence MSE business performance. Collateral requirements were found to be the most significant predictor of MSE’s business performance followed by credit awareness then interest rate and lastly lending procedures. The study recommended the need for financial institutions to improve credit accessibility elements so as to enable more MSE businesses access to credit. In particular, they should make the loan application process simple, review loan repayment period and conduct proper client evaluation. They should also enhance visit to business premises by credit officers, organize seminars and provide timely and accurate information about credit to MSE owners. Further, they should make collateral affordable to clients and also introduce a variety of collaterals that MSE owners can manage. Finally, they should review the interest rates charged on credit advanced to MSE businesses.