Factors which Affect Accessibility of Loans by Small Businesses by Commercial Banks in Nakuru Municipality - Kenya
The Kenyan financial sector is composed of banking sector, micro-finance institutions (MFls), SACCOS and the informal financial services sector, with the banking sector contributing largest percent of all business loans advanced mainly to large and medium scale businesses leaving small businesses with little or no access to finance from commercial banks. Despite the long existence of commercial banks in Kenya, both local, international and multinational,most of the them have shied away from lending to small-scale business. This has lead to mushrooming of microfinance institutions and SACCOS to cater for these small-scale businesses loans need. However due to their limited capital as compared to commercial banks, they have not been able to fully meets the loans needs of small scale business. Consequently, many small-scale businesses have been unable to grow despite their long existence while others have collapsed few years after their establishment. This study therefore seeks to find out lending conditions by commercial banks that affect small-scale business. To achieve this, the following objectives, to determine the effect of bank competition and pricing on the accessibility of loans by small businesses in commercial banks in Nakuru , to determine the effects of banks lending requirements to small businesses that hinders easy accessibility of small scale businesses and to determine the effect of bank geographical distribution on the accessibility of loans by small businesses in commercial banks in Nakuru were tested The study was guided by research question, which includes, what is the effect of bank competition and pricing on the accessibility of loans by small businesses in commercial banks in Nakuru. The study was guided by Ghatak and Guinanne (1999) Lending model theory. The study showed a comparison of individual liability contract, entrepreneurial effort was strictly higher under peer group lending with joint liability that monitoring costs were low and social sanctions are effective. The research design in the study was survey study of Commercial Banks in Nakuru .The target population was selected. from 8 commercial banks, 548 customers and 24 loan officers selected from the selected 8 commercial Banks. This study applied stratified and simple random sampling techniques. Stratified sampling was used to put the population into different categories of different Banks (large and small) .Simple random sampling used to select 30% of the target population of banks and customers which is 166 Customers. Census Method was used to select 24 loan officers. The research instruments that was used included questionnaires and interview schedules. Descriptive statistics, frequency tables and percentages were used to present the data, while for inferential statistics; multiple regression and Pearson's correlations were further used. The study found out that competition, pricing, Commercial banks tight bank requirement and geographical distributions as important factor that affect accessibility of loans by small businesses by commercial banks. The study concludes that Majority of the population are locked out of the formal financial .sector due to the many strict requirements and stringent conditions required by the banks for one to open an account or access credit because their information is not captured. Consequently, the study recommends that CBK should influence the interest rate regime by offering treasury bills with very favorable rates of return and which are affordably denominated so that the banks are left with no option but to scramble for deposits by offering better rates of return. Suggestions for further study were on transaction costs for the consumers and the banks, Market power in relation to deposit rates and interest rates and concentration in the banking sector and its impact on deposit and loans.