Evaluation Of Factors Influencing Small And Micro Enterprises’ Credit Worthiness By Commercial Banks In Nakuru Town, Kenya

Abstract

Small and Micro Enterprises play a vital role in job creation and make significant contributions to economic growth in developed and developing economies alike. However, one on the main challenges of small and micro enterprise has been access to finances and capital. This study therefore sought to evaluate the factors influencing Small and Micro Enterprises credit worthiness by commercial Banks in Nakuru Town, Kenya. The specific objectives looked at: firm’s ownership, firm’s financial performance, credit information sharing and central bank regulations to determine how they affect credit worthiness of Small and Micro Enterprises from the perspective of commercial banks. The study was conducted among commercial banks in Nakuru Town using the survey research design. The target population was 68 bank staff involved in Small and Micro Enterprise lending who comprised of 34 credit managers and 34 Small and Micro Enterprise loans/relations officers; a census design was used to select all the members of the target population for study. The study used questionnaire as a collection tool of primary data. Data collected was coded and analyzed with the aid of computer programs Statistical Package for Social Sciences (SPSS) and excel computer programs. Quantitative data was analyzed using descriptive statistics which include frequencies and percentages. Chi square (x²) analysis was then done to determine how individual factors affected creditworthiness. Influence of independent variables on the dependent variable was then computed using the multiple regression analysis. The findings of the study were that the firm ownership, financial performance and credit information sharing had statistically significant relationship with credit worthiness while CBK guidelines didn’t .The study therefore recommended that commercial banks should develop a guideline for their SME clients outlining their criteria for determining ownership characteristic and their respective scores.