Lilian Wanjiru Mwai

The development and sustainability of the SMEs in the economy is of paramount importance if the dream of wealth creation is to be realized at all. The main sources of credit to SMEs are relatives and friends, formal banks, MFIs and personal savings. There has been a lot of emphasis on provision of financial services to SMEs in form of credit and despite catalytic role expected to be played by MFIs in facilitating economic growth through SMEs, the enterprises have continually faced persistent barriers in accessing funds for investments. This study therefore tried and filled the gap by investigating the challenges facing SME’s in accessing credit from micro finance institutions. The study found out the effect that collateral, size and organizational structure have on SMEs access to credit from MFIs.  To achieve this, the literature review offered insights and review the critical points of current and past knowledge including substantive findings as well as theoretical and methodological contributions to the topic.

Each of the contributing factors (collateral, size and organizational structure) was discussed in lengthy to ascertain their effect of SMEs access to credit. The study was carried out within the Central Business District (CBD) of Nairobi. Descriptive research design was used and the target population included 200 SMEs businesses within Nairobi. Random sampling technique was used to select the sample from the population. Both primary and secondary data were used whereby secondary data was obtained from government statistics through publications, academic journals and websites while primary data was gathered through questionnaires which were administered to the owners of SMEs. Validity and reliability tests were also carried out to measure the reliability of the data collection instrument. Data analysis was done both quantitatively and qualitatively whereby Statistical Package for Social Sciences (SPSS) version 17, was used for analysis; the analyzed data was presented in form of tables and charts. The researcher ensured that all the respondents were treated with respect and personal information was treated with confidentiality. The findings concluded, that collateral is a major change to access of credit by SMEs from the MFIs in Nairobi Business district. This is because majority of the respondents found the requirements of qualifying for credit in terms of collateral as being unattainable. The size of the business also is another challenge to access of credit from the MFIs. There is high risk involved because small firms have high failure rate compare to large firms hence reduced access to credit. These challenges should be dealt with to make SMEs business activities more favorable in terms of credit accessibility. The SMEs organizational structure is another challenge that the respondents said influences access to credit. The findings for this study had an eventual use to design policies for improvement of SMEs in Kenya. It also provides several insights on the determinants of access to credit by SMEs.