A Survey of Determinant of Access to Informal Credit by Small Businesses in Meru County, Kenya

Abstract

Research has shown that one of the challenges facing small scale businesses is access to formal and informal credit. General rules and regulations in the formal financial institutions hold that the poor are not bankable since they cannot afford the required collateral, and hence considered not credit-worthy. This research intended to contribute towards this end by investigating the factors that determine access to informal credit by small scale businesses in County, Kenya. The purpose of this study was to generate a profile of the factors affecting access to informal credit by the small businesses, with the aim of shedding some light on specific financial challenges these businesses are facing. The factors that were investigated in this research are whether collateral, interest rate, level of education and the poverty level limits access to informal credit. Using descriptive survey design and purposive sampling technique 60 businesses people were selected from 10 Small shopping centres in Egoji Divisions of Meru County. A structured questionnaire was used to collect data from the sample respondents. It has been established that there was a weak relationship between the amount borrowed and the level of education of the borrower, there was strong relationship between the amount borrowed and the interest rate charged (R 2 = 0.838), that and there was a negative relationship between