Financial institution factors influencing loan default by SMEs in Kitui Central Sub-county

Abstract

The Small and Medium Sized Enterprises (SMEs) are considered as the power driving many countries’ economies. Elsewhere, it's been argued that SMEs are the lifeblood of most economies round the world and any government cannot afford to ignore this sector. Access to money capital is a important issue for the success of SMEs significantly in their early years. Industrial banks represent the anchor of the expansion of different sectors by providing them access to credit facilities within the style of loans. A recent survey by CBK has established that these SMEs flat-topped the list of biggest loan_defaulters within the half-Year of 2015. The most objective of this study was to ascertain the financial factors influencing loan_defaulting by the SMEs operative in Kitui Central Sub-County. The study’s target population consisted of all the registered SMEs operative in Kitui Central Sub-County. This study used just one sampling technique: straightforward sampling methodology, in choosing the SMEs to represent the target population. This study collected primary information by use of a structured form. The info assortment tool was administered to the chief government officers of every specific SMEs designated to make the sample size. The collected information was processed with the assistance of the applied math Package for Social Sciences (SPSS version 21). The study conducted multiple correlations and multivariate analysis to search out out the connection between the variables that were studied. Multiple regressions were used to work out the results of the money factors on loan default by the SMEs in Kitui Central Sub-County. The study findings established that there was a medium positive and a significant positive relationship at 99% confidence level between the mode of loan payment and loan_default (r=0.644, p=0.000). There was also a strong and a significant relationship 99% confidence level between the structure of rate of interest and loan_default (r=0.774, p=0.000). The findings also showed that there was also a weak but a significant positive relationship at 99% confidencelevel between the size of loan and loan_default (r=0.335, p=0.003). There was also a weak positive correlation between the loanrepayment interval and loan_default (r=0.240, p=0.033). The relationship between loanrepayment interval and loan_default was significant at 95% confidence level. There was medium correlation and a significantrelationship at 99% confidencelevel between the type of financial institution and loan_default (r=0.605, p=0.000). This study concluded that the mode of loan repayment, the structure of rate of interest and the type of financial institution highly influenced loan_default. Therefore, the study recommends that the financial_institutions ought to contemplate revising their loaning policies thus to reduce loan compensation issues emanating from the lenders, loans and therefore the characteristics of the credit establishments.