EFFECT OF MORAL SUASION ON ACCESS TO CREDIT AMONG MICRO, SMALL AND MEDIUM ENTERPRISES IN KISUMU COUNTY

Abstract

Purpose: The purpose of this study was to investigate the effect of monetary interventions on access to credit by micro, small and medium enterprises in Kisumu County, Kenya. The specific objective was to assess the effect of moral suasion on access to credit by micro, small and medium enterprises in Kisumu County. The theory supporting this study was the monetarism theory by Milton Friedman of 1967. It states that when money supply expands, it lowers interest rates and when money supply decreases, it raises interest rates making loans more expensive and slowing down economic growth.
 Methodology: The study adopted a descriptive research design. The target population was the 1,472 micro, small and medium enterprise groups registered at the department of Social Services in Kisumu County, Kenya. A confidence level of 95% was adopted to obtain a representative sample based on the formula by Yamane Taro. A closed ended questionnaire was administered to a stratified sample of 420 finance managers of the micro, small and medium enterprises. A Cronbach’s alpha of 0.801 confirmed the reliability of the instrument while its validity was assessed by expert opinion of finance professionals. Data diagnostic tests and descriptive analysis provided a basis for the inferential analysis, based on correlation and regression analysis. Results showed that moral suasion has a statistically significant effect on access to credit by micro, small and medium enterprises.
 Findings: The findings provide empirical evidence that moral suasion is significant for interventions targeting access to credit by MSMEs.
 Unique contribution to Theory, Policy and Practice: This study contributes to the practice of MSMEs because it recommends that access to credit by MSMEs depends on the direct effects of moral suasion. This sector should therefore take advantage of the interventions available to them through moral suasion. The study contributes to policy by recommending that policy-makers ought to employ sector specific interventions through moral suasion by setting aside funds for this sector to be managed by the financial institutions. They could also provide credit guarantees to the MSME sector to cushion the banks from non-performing loans.