Credit History and Credit Rationing among Registered Small and Medium Enterprises in Kiambu County, Kenya
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Date
2020-06
Authors
Njagi, Gilbert Nyaga
Jagongo, Ambrose Ouma
Omagwa, Job
Journal Title
Journal ISSN
Volume Title
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Abstract
Substantial empirical evidence has shown that credit rationing is strongly experienced by Small and Medium Enterprises
in Kenyan. On average Small and Medium Enterprises (SMEs) are awarded at most 17.4 percent share of amount of loans
available in the credit market. The paradox surrounding credit rationing among SME is that sufficient credit is always
available to SME sector, however the inadequate financing still persists. Several studies have pinpointed the factors
contributing to the financial credit rationing; however, they have resulted to conflicting conclusions which creates a
motivation for this study. Further, according to Resource Based Theory, business credit history determines the
competitive advantage of SMEs in accessing bank credit. Therefore, this study sought to establish the effect of business
credit history on credit rationing among registered Small and Medium’ Enterprises in Kiambu County, Kenya. The study
adopted positivism philosophy and utilized explanatory study design. The target population was 41,115 registered and
active Small and Medium Enterprises and a sample size of 397 was used. The study used both structured questionnaire
and data collection sheet to collect data. The data was analyzed using descriptive statistics and inferential statistics.
Logistic regression model and moderating logistic regression model were used to test the respective hypotheses. The
findings from logit analysis indicated that credit history have a statistical significance effect on credit rationing (p-value
= 0.046< 0.05). The findings from the testing of moderating effect of inflation on the relationship between business credit
history and credit rationing indicated that there exists statistically significant moderating effect of inflation on the
relationship between business credit history and likelihood of SME being credit rationing (p- value = 0.002< 0.05). Guided
by the findings, a number of recommendations were made. As envisioned by the Vision 2030, it should be mandatory for
all SMEs to be registered under credit reference bureaus. By doing this, it will be possible to determine their past credit
performance at minimal cost and rate them from facts rather than mere perception. Lastly, the existence of moderating
effect of inflation implies that the government should pursue to maintain inflation levels as per Vision 2030 projections of
one -digit figure.
Description
DOI No.: 10.24940/theijhss/2020/v8/i6/HS2006-003
Keywords
Credit History, Credit rationing, Inflation, Logit analysis, Small and medium enterprises, Moderating effect
Citation
The International Journal of Humanities & Social Studies, Vol 8;6. DOI No.: 10.24940/theijhss/2020/v8/i6/HS2006-003, June, 2020. www.theijhss.com