Effects of interest rates on the growth of small business enterprises: a case study of small business enterprises within Kericho County.

Abstract

Small businesses operate under harsh conditions and are not able to help spur required high economic growth. Some of the key challenges to majority of small business is lack of adequate and affordable credit and thus upset their desired growth. The small sector contributes immensely to the growth of the economy but there is little facilitation in terms of enacting a sound legal framework and increase resource allocation. This research therefore aimed at establishing the effects of interest rates on the growth of small enterprises. The study was guided by the following objectives; To determine the effect of interest rates fluctuation on the growth of small enterprises, to evaluate the effect of taxation on the growth of small enterprises and to establish the effect of credit repayment terms on the growth of small enterprises. A descriptive research design was used with a target population of 1500 respondents of which 306 of them were sampled .. Questionnaires were used for data collection. The validity of the instruments used was achieved by discussing the relevance of the research instruments with the supervisor to ensure simple and accurate questions provide simple answers. Reliability was achieved by pre-testing the same data in Kericho County. The findings showed that small enterprises have suffered greatly due to high interest rates levied upon them by financial lending institutions. High interest rates are caused by high economy due to inflation, the drop in Kenyan shilling and high taxation on basic commodities by the government. Conclusions are that there is high exposure to risks which include; theft, fraud, destructions by fire among others. Banks faces risks in trying to collect the amount loaned to these small scale enterprises. However, small enterprises are majorly affected by inflexibility of their operations. Recommendations are Small entrepreneurs are encouraged to do marketing activities outside the County, and adopt new skills of doing business through computer aided techniques. To mitigate risks, they are advised to insure the business premise. Majority of small enterprises has collapse, therefore they are dormant, and this has affected the operations of other businesses since their existence impact on the growth of other small enterprises in order to ensure competitive environment is ensured. The government through ministry of finance should regulate policies aimed at regulating the fluctuations of interest rates by banks because this has impacted negatively to the growth of small enterprises. VII