Effect of digital financial access to credit on growth of small and Medium Enterprises in Nairobi County-Kenya
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Players in the SME sector are experiencing challenges accessing formal loans through traditional banking procedures and this is affecting growth of SMEs. However, digital platforms have provided SMEs with an opportunity to access loans to finance their businesses. The purpose of this study was to analyze the effect of digital financial access to credit on growth of small and medium enterprises in Nairobi County, Kenya specifically. The study employed a descriptive and causal research design that relied on questionnaires as the main research instrument. The county of Nairobi was stratified into 17 constituencies then proportional sampling procedure was employed to determine sample size in each strata. Simple random sampling was then employed to select the target sample units. In total, the study was able to draw in the participation of two hundred and thirty one participants drawn from across the county. The study findings reveal that the level of uptake of access to credit on digital platforms was 45.0%. The perceptions of SMEs towards digital financial platforms contributed negatively to credit access via digital platforms. Most of the respondent who had not accessed any credit facility via a mobile phone associated digital financing options with high costs. Statistical outcomes reveal that there was a weak but significant relationship between the extents of business growth in terms of turnover associated with the frequency of access to credit on digital financial platforms. Also there was a significant positive relationship between access to credit via digital platforms and business growth in terms of cash flow. As such the greatest effect of access to credit was on cash flow which in turn influenced business growth. The common challenges associated with access to credit via digital platforms were inability to keep pace with technological advancement, lack of confidence in mobile platforms, lack of interaction with service provider staff during loan application, low credit levels, short loan repayment periods and high loan interest rates. The study findings show that potential for SMEs to take advantage of the opportunities presented through digital financing remain largely untapped. Negative SME perceptions are also a hindrance to increased access to credit via digital platforms. This study is particularly important for SME operators in making informed decisions on accessing credit on digital platforms. The digital loans increase the data available on SMEs for financial service providers thereby improving their future chances of accessing more loans and of higher amounts. The credit service providers will also have increased awareness of the potential market for the provision of digital credit to SMEs. In view of the increased players in the financial services sector brought about by entrenchment of digital platforms the study will also highlight the business opportunity in digital lending to SMEs. Increased competition for provision of digital credit services to SMEs would eventually lead to better structured and priced products.