Challenges and Constraints towards Rural Credit Access among Small and Medium Enterprises in Kenya

This study has discussed the key inhibiting factors towards rural access to credit among small and medium enterprises. The specific objectives were to find out the effect of interest rate on the access to credit of rural small and medium enterprises, to evaluate the effect of business support services on access to credit of rural small and medium enterprises, to investigate the effect of transaction cost on access to credit of rural of small and medium enterprises and to assess the effect of collateral requirement on access to credit of rural small and medium enterprises. The study adopted a descriptive research design. The research collected primary data by use of questionnaires. The target population was 500 rural small and medium enterprises. A sample of 50 small and medium enterprises was used in the study. The study analyzed data using descriptive statistics and by use of Statistical Package for Social Sciences software. The results were presented in form of tables and charts. The study established that that interest rate, business support services, transaction cost and collateral requirements affects the access to finance of small and medium enterprises. The study however found that the effect of transaction cost on access to finance was insignificant unlike the other variables (interest rate, business support services and collateral requirements) which were all significant. The study therefore recommends that policy makers and the government should review the rates of interest, government should support training of small and medium enterprises owners and managers to impact the skills and the creation of institutions network in order to build social capital through small and medium enterprises association. Small and medium enterprises managers should develop business model that monitor transaction costs. The government should formulate legislation that enables lenders to establish diverse forms of security for loans. The study recommends further studies of the same study in varied areas within Kenya to determine if this challenges and constraints that affect access to credit are common. The study suggests further research on other factors which affect access of credit of SMEs such as awareness of financing opportunities, management skills, lack of internal competence and risk factors. The study also recommends a research on the supply side factors influencing access to credit of SMEs to understand factors limiting credit to the sector.