Influence of Financial Advisory Services on Access to Credit by Micro Enterprises in the Formal Sector in Kenya
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Date
2023-08Author
Karimi, Ann Njeri
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Access to credit from financial institutions for the purpose of financing state-regulated
micro-enterprises in Kenya has been largely based on personal judgement, resulting in
a lack of available credit from banks and other financial institutions due to the high
rate of credit default. This has severely restricted the prospects of entrepreneurs
funding their enterprises. In order to address this issue, this study was conducted to
investigate the influence of financial advisory services on access to credit by micro enterprises in the formal sector in Kenya. The independent variables examined
included financial market awareness, financial planning services, credit risk education
and credit counseling services. The dependent variable of the study was access to
credit, while the moderating variable was borrowing behavior. The study was guided
by various theories, including rational expectation theory, agency theory, behavioral
theory, collective risk theory, and theory of reason action to hypothesize the
interconnection between the chosen variables. To accurately capture the insights of the
research, a correlational research design was employed, with the study population
being 50,043 micro-enterprises licensed by the 47 county governments within the
universe of 1,215,184 Kenyan regulated enterprise. A sample size of 384 micro
enterprises was determined using the Cochran formula and a probability
sampling technique was employed to obtain the sample from the population. Data from
the 47 counties within the 8 former administrative regions of Kenya was collected
proportionately. Primary data was gathered and analyzed using structured
questionnaires. The measures of dispersion were used to compute means, frequencies,
and standard deviation from grouped data obtained from the overall Likert scale while
inductive statistics such as logistic regression, were applied to investigate the
relationship between the study variables using advanced SPSS computer software
version 23. The results of the logistic regression analysis indicated that financial
market awareness, financial planning services, credit risk education, and credit
counseling services had a significant and positive influence on access to credit. The
analysis also suggested that borrowing behavior had a significant effect on financial
advisory services and access to credit. The findings suggested an important role of
financial advisory services in facilitating access to credit for micro-enterprises in the
formal sector. However, the low levels of financial market awareness, financial
planning services, credit risk education and credit counseling services have hindered
access to credit for financing the regulated micro-enterprises, thereby affecting the
overall performance of the MSMEs sector. The study advises that the Government
develops strategies for active engagements to promote financial market awareness,
financial planning services, credit risk education, and credit counseling services to
enhance access to credit. Further, licensing of more certified financial planners and
inclusion of a credit counselling certification program with certified counselors in the
capital markets will be beneficial. The enhancement of the MSEA’s mandate to
include technical assistance and incentives to credit counseling and financial planning
firms’ professionals as well as support to the micro-enterprises to offer competitive
interest rates and reduce lending limitations like lengthy paperwork and high collateral
requirements will be positive for access to credit. Further studies are needed to
comprehend the role of gender and digital financial services in access to credit and the
potential impact of the current regulatory environment on financial access and the
effectiveness of government policies in increasing access to credit
Publisher
KeMU