Effects of interest rate capping on the borrowing behaviour of SMEs in Nairobi CBD

Abstract

Small and Medium Enterprises (SMEs) refer to businesses and other organizations that are between small office size and large enterprises, having no mor~ than 500 employees. They are an important segment of the economy contributing 3 percent of GDP growth out of a total of 6.4 percent GDP growth in Kenya as of2017(Muriithi, 2017). SMEs are the backbone to many economies around the world. In order for this and other sectors of the economy to thrive, financing plays a major role. Finances enable business enterprises to start up, diversify, expand and meet the working capital requirements. SMEs get finances from various sources such as personal investments, business incubators, government grants, venture capital and bank loans. Access to credit for SMEs is a fundamental part to the growth of SMEs and economic growth of developing countries such as Kenya. Other factors held constant, a strong relationship exists between the size of a country's SME sector and its economic advancement and growth. Most of the jobs in the developing and developed world come from SMEs showing how important SMEs are to the economy and therefore financial and institutional development helps alleviate SMEs' growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes. (Akinyemi & Adejumo, 20 17)