The Influence of Collateral Availability on Access to Credit by Small and Medium Enterprises (SMEs) in Meru County

Abstract

Purpose: Small and Medium Enterprises (SMEs) significantly contribute to both social and economic development of people largely through their roles in job and innovation creation, and revenue generation. Majority of SMEs are undercapitalized due to inaccessibility of credit facilities. This adversely influence their capacity to invest in productive ventures and realize their corporate goals. Factors that influence SMEs’ access to credit are not well known. Thus, the current study sought to establish the influence of collateral availability on access to credit by SMEs in Meru County.
 Methodology: The study was guided by the theory of information asymmetry and the pecking order theory. The study was based on the descriptive survey design. The study targeted 204,810 SMEs in Meru County of which 384 SME owners were sampled using stratified sampling. Quantitative data was analyzed using both inferential and descriptive statistics.Qualitative data was analysed thematically.
 Findings: The study found that majority of SMEs in Meru County are able to access credit from SACCOs but not from MFIs and Banks without necessarily having to provide collateral since guarantors’ savings act as security for the loans.
 Recommendations: The study recommend that SMEs should ensure that they do not have negative listing by CRB to increase their chances of accessing credit. The study also recommend SMEs owners to acquire training on how to prepare and maintain proper financial statements.