Kamau, Joseph Mwaura

Despite presence of credit providers, credit inaccessibility remains a major issue in Kenya. Credit plays an important role in the economy by increasing investment, production and consumption and thereby economic growth and development in general. In Kenya the ministry of co-operative jointly with Ministry of Agriculture has tried to address the issue of SME credit but still it seems yet to be far from achieving its set objective which has remained rather unclear and especially in the area of credit supply. Despite the financial deepening arising from financial liberalization, the gains have not been translated to the rural areas and low income areas in terms of improved income levels. The growth of the ratio of money supply (M2) to GDP would have implied availability of finances for credit.  However, this may not be the case as there are several factors that influences demand for credit. The entrepreneurs in Juja market, who are a representative of the population in Thika district and its environs, have the potential to operate big entrepreneur because of its strategic location.

However the enterprises in market are operated on small scale since the market was started in 2003. This could be attributed to challenges facing small and medium enterprises, which include lack of credit, inadequate education and skills, managerial training and experience. Lack of access to credit is almost universally indicated as a key problem for small and medium enterprises
 Using primary data collected from target population, which is all the entrepreneurs/business owners in juja market in juja constituency and employing Heckman two-step model and multinomial logit model estimations, we analyzed demand for credit. The study adopted both descriptive and causal-relationship research design. The study analyzed factors that affect amount of credit demanded by entrepreneurs/individuals through testing of hypothesis. Logit regression analysis was done with the aid of Statistical Package for Social Science. Logit regression analysis was adopted because the data was in categorical form. Because variables gender and number of dependents one has was found to be having problem of correlation with other independent variables they were dropped from final logit regression analysis and remain independent variables were current lending interest rate, level of education attained by the owner of the business, collateral required and marital status.
 The study found out that level of education, interest rates, and collateral requirement relate negatively to amount of credit demanded. However, numbers of dependants the business owner has, marital status and gender have positive relationship to the amount of credit demanded. From the study’s findings, credit inaccessibility can be attributed to individuals’ business characteristics as well as credit providers’ attribute. While government concerns primarily have been on the supply of credit, the focus should be improved credit accessibility through addressing factors that adversely affect demand for credit. These factors include: low levels of education; lack of appropriate collateral by businesses/entrepreneurs; high interest rates; negative perception; and lack of information on the available of credit providers.