Effect of information sharing on lending to small and medium sized businesses in Kenya

Abstract

Small and medium sized businesses in Kenya have long been unable to access financing from formal institutions. This is because lending to small businesses has been considered risky, especially in the absence of credit information, leading formal lenders to charge high rates of interest. The licensing of private credit bureaus to facilitate the exchange of credit performance reports between lenders should provide more accurate methods of credit analysis and increase lending to small businesses at more competitive rates. The study aims to establish whether since their operationalization there has been a significant effect of credit bureaus on lending to small and medium sized businesses. Participants in the research include commercial banks and owners of small businesses. Questionnaires and structured interviews were used to collect data. The study finds that though there has been an increase in lending to SMEs since 20 I0, the effect of credit bureaus in propagating this increase is minimal.