SME's access to credit, a case of Kisii county – Kenya

The banking sector comprises of 49 institutions, 42 of which are commercial banks, 3 mortgage finance companies, one non-bank financial institutions and one building society as at December 2008, according to CBK annual reports. Despite the long existence of commercial banks in Kenya, local, international and multinational, they have shied away from lending to small-scale businesses. It is a well-established fact that access to finance is a major determinant of economic growth (Beck, Levine, and Loayza, 2000). Therefore, access to finance, which has been one of the core topics in development for quite some time, has emerged on the agenda of nearly all governments. The important policy question is: what measures must be taken to foster access to finance? This study therefore attempted to find out lending conditions by commercial banks that affect small-scale business in Kisii County. The study found out that competition, pricing, Commercial banks tight bank requirement as important factor that affect accessibility of loans by SMEs 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.