Formal and informal institutions’ lending policies and access to credit by small-scale enterprises in Kenya: An empirical assessment

Abstract

This study assessed the role of institutional lending policies among formal and informal credit institutions in determining the access of small-scale enterprises to credit in Kenya. The results of the study show that the limited use of credit reflects lack of supply, resulting from the rationing behaviour of both formal and informal lending institutions. The study concludes that given the established network of formal credit institutions, improving lending terms and conditions in favour of small-scale enterprises would provide an important avenue for facilitating their access to credit. The main objective of this study was to investigate and assess the role of the institutional lending policies of formal and informal credit institutions in determining the access to and use of credit facilities by small-scale entrepreneurs in rural Kenya. The specific objectives of the study were To identify the main features of the lending policies of formal and informal credit institutions that determine the access to and use of credit by small-scale entrepreneurs, To analyse the factors that determine the participation of entrepreneurs in credit markets and their choice of credit sources in Kenya, To draw policy implications for financial services to small-scale enterprises in Kenya.

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