Relationship lending and access to financial services by SMEs in Kenya

Edward Kiringa, Fredrick W.S. Ndede and Argan Wekesa
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Edward Kiringa: Kanyyatta University
Fredrick W.S. Ndede: Kanyyatta University
Argan Wekesa: Kanyyatta University

International Journal of Research in Business and Social Science (2147-4478), 2021, vol. 10, issue 5, 235-244

Abstract: Policymakers and scholars acknowledge the significance of small and medium enterprises in stirring the economic growth and development in developing and developed economies. In spite of the generally fast pace by which access to financial services for small and medium enterprises is being established, significant segments of the small and medium enterprises sector do not yet benefit from the expansion. This study, therefore, investigated the effect of relationship lending on access to financial services by small and medium enterprises in Kenya. The study was based on credit rationing theory and information asymmetry theory. The target population comprised 4,253 small and medium enterprises in Kenya. A sample size of 366 SMEs was used by the study. The study adopted a multistage sampling technique to obtain the SME respondents. Primary data was utilized and was acquired through semi-structured questionnaires. Data were analyzed using descriptive and inferential statistics utilizing Heckman two-stage regression model. The study findings showed that relationship lending had a positive and significant effect on access to financial services among SMEs in Kenya. The study concluded that relationship lending plays a critical role in access to financial services by SMEs in Kenya. The study recommends that SMEs owners should strive to meet the terms and conditions provided by lending institutions in their various financing practices while management of the lending institutions should adopt financing practices favorable to SMEs to increase their access to financial services. Key Words: Relationship Lending, Financial Services, SMEs, Kenya

Date: 2021
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