Financial Statement Lending, Credit Information Sharing and Access to Financial Services by Small and Medium Enterprises in Kenya

Abstract

Policy makers and scholars acknowledge the significance of small and medium enterprises in stirring the economic growth and development in developing and developed economies. In spite of the generally fast pace by which access to financial services for small and medium enterprises is being established, significant segments of the small and medium enterprises sector do not yet benefit from the expansion. This study therefore investigated the effect of financial statement lending on access to financial services by small and medium enterprises in Kenya. The study further sought to establish the moderating effect of the credit information sharing on the relationship between financial statement lending and access to financial services by small and medium enterprises in Kenya. The study was based on Financial Intermediation Theory and information asymmetry theory. The target population comprised 4,253 small and medium enterprises in Kenya. A sample size of 366 SMEs was target by the study. The study adopted multistage sampling technique to obtain the SMEs respondents. Primary data was utilized and was acquired through semi-structured questionnaires. Data was analysed using descriptive and inferential statistics. Heckman two step selection model was applied in regression analysis. The findings of regression analysis show that financial statement lending had a positive and significant effect on access to financial services among SMEs in Kenya. The results established that credit information sharing had insignificant moderating effect on the relationship between financial statement lending and access to financial services among the SMEs in Kenya. The study concluded that financial statements play a critical role in ensuring small and medium enterprises access financial services. Lenders can determine the financial position of the business by analysing their cashflow in order to be able to advance the credit that the business is able to pay based on their financial statement.