Factors contributing to borrower discouragement among Micro, Small and Medium Enterprises in Nairobi County, Kenya

Abstract

The banking sector has made tremendous efforts towards providing opportunities for business enterprises to increase financial access which has been a major impediment to their growth and sustainability. Despite these efforts, small business remains financially constrained but at the same time are hesitant in applying for bank credit. This latent demand is viewed as borrower discouragement and potentially affects the ability of micro small and medium enterprises to attain their full potential in Kenya. This research examined the factors contributing to borrower discouragement among micro small and medium enterprises in Nairobi County. The study was guided by three specific objectives to: determine entrepreneur characteristics, firm level characteristics, and business environment influence on borrower discouragement among micro small and medium enterprises. The study was based on general systems theory, resource-based view, institutional theory, and deterrence theory. A positivist research philosophy was adopted under which a descriptive cross sectional research design was implemented. The target population was 12,492 enterprises in Nairobi County. Stratified simple random sampling was used to select 205 respondents. Data was collected through administration of questionnaire. Descriptive and inferential statistical analysis was done. Results of the study depicted that entrepreneur characteristics, firm level characteristics, business environment characteristics had a positive statistically significant effect on borrower discouragement. Policy recommendation is that targeted training programmes be designed for MSMEs, and undertaken regularly focusing on loan application procedures, requirements and proper use of funds. This will close gaps on product knowledge and address borrower apprehension.

Key words: Entrepreneur characteristics, firm level characteristics, business environment characteristics, borrower discouragement.