Abstract
AbstractAccess to credit by micro, small and medium enterprises is key for growth and employment. However, it is hindered by information asymmetry. We investigated the effect of mobile telephony and social networks (group networks) on the probability of access to credit by Micro, Small and Medium enterprises in Kenya. Our analysis employed cross-sectional data, the 2016 FinAccess Household Survey infographics sheet. The analysis assumed a limited dependent variable modelling. Our analysis revealed that micro-, small- and medium-sized enterprises with owners who currently have mobile banking, mobile money and group participation, respectively, have 8.8, 6.05 and 1.97 percentage points higher chance of receiving formal credit. In terms of informal credit, the analysis revealed that below five groups participation in an extra group by the MSME owner increases the probability of accessing informal credit by 6.26 percentage points. As policy measures, our analysis implies that owners of MSMEs should participat...
Highlights
We test whether MSMEs owner’s participation in either Mpesa, Airtel money, Orange money, mobile banking, merry go rounds, chamas, investment clubs and clans/welfare groups matter in enhancing their MSMEs access to credit? Using survey data on 2,248 MSMEs owners surveyed by FSD-Kenya in 2015 we show that MSMEs owned by participants stand more chances of accessing credit than those owned by non-participants
The MSMEs owned by owners who participate in group networks and mobile telephony have a much higher chance of accessing formal credit
MSMEs owned by owners who participate in group networks and mobile telephony have a much higher chance of accessing informal credit
Summary
The models include the use of social networks (group lending and monitoring) and mobile telephony (mobile banking and mobile money) to tackle the information problems and lack of collateral (Financial Sector Deepening Kenya, 2015). The money lenders are, leveraging on technological advances in mobile telephony and social networks to lend to MSMEs. This study seeks to establish the effect of these models on MSMEs access to credit. There is likelihood that most business loans are secured from personal accounts (Financial Sector Deepening Kenya, 2015) This makes the MSMEs owner’s social networks important to the MSMEs access to credit. The study established that family networks are vital in reducing search and information costs and active networks increase the probability of accessing credit compared to non-active networks None of these studies attempted to estimate the effect of mobile telephony or social networks on MSMEs access to credit. We seek to fill the gap of testing the effect of social networks on firms access to credit in Kenya as well as that of the “new” concept of mobile telephony
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