Since thirties access to debt capital has been considered as one of the main challenges facing the growth of Small businesses in the world. Empirical studies in developed countries focused on access to debt capital without considering the cost of that debt, due to the fact that the cost of debt is cheaper in developed countries. However, this is not the case in the developing economies such as Kenya due to lack of financial transparency, high interest rate, high risk, and poor financial reporting. This study endeavored to investigate the hindrance of small businesses to access debt capital in Nairobi, Kenya. In addition, the study used loan-pricing theory (LPT) to clarify the theoretical explanation of factors that hinder Kenyan SMEs to access debt capital. Factors that this study investigated are: cost of debt (CD), faith prohibition (FP), and long process (LP). The study applied regression and correlation to analyze the collected data using SPSS. The analysis revealed significant relationship between cost of debt and access to debt capital. There was also significant relationship between long process and access to debt capital. But the relationship between faith prohibition and access to debt capital was insignificant. The study concluded that the government should facilitate cheap finances for small businesses to enable them access to debt capital and improve their performance. Developing online loan facilities should reduce the long process and sizeable paper work of accessing debt capital. The government should connect the grid to small businesses and encourage virtual lenders to lend out a sizable portion of their credits.
| Published in | International Journal of Accounting, Finance and Risk Management (Volume 7, Issue 4) |
| DOI | 10.11648/j.ijafrm.20220704.13 |
| Page(s) | 157-163 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Cost of Debt, Access to Debt Capital, Long Process, Kenyan SMEs
| [1] | Mishra, A. K., Bairagi, S., Velasco, M. L., & Mohanty, S. (2018). Impact of access to capital and abiotic stress on production efficiency: Evidence from rice farming in Cambodia. Land Use Policy, 79, 215-222. |
| [2] | Tarutė, A., & Gatautis, R. (2014). ICT impact on SMEs performance. Procedia-social and behavioral Sciences, 110, 1218-1225. |
| [3] | Itumo, J. N. (2019). Factors Affecting Small and Medium Business Enterprises in Accessing Loan Facility in Kenya (A Case Study of Embu County). |
| [4] | Khaw, K. L. H., Zainudin, R., & Rashid, R. M. (2019). Cost of debt financing: Does political connection matter? Emerging Markets Review, 41 (C). |
| [5] | Shala, V., Kutllovci, E., & Troni, B. (2018). Business Strategy, the key determinants of SME growth in Kosovo. International Journal of Advances in Agriculture Sciences. |
| [6] | Rafiki, A. (2019). Determinants of SME growth: an empirical study in Saudi Arabia. International Journal of Organizational Analysis. |
| [7] | El Shoubaki, A., Laguir, I., & Den Besten, M. (2020). Human capital and SME growth: The mediating role of reasons to start a business. Small Business Economics, 54 (4), 1107-1121. |
| [8] | Jingsong, C. Q. Z. Y. W. (2005). Loan Pricing Strategy and Model Design by Commercial Banks [J]. In Finance Forum (Vol. 2). |
| [9] | Pfiffelmann, M., Roger, T., & Bourachnikova, O. (2016). When behavioral portfolio theory meets Markowitz theory. Economic Modelling, 53, 419-435. |
| [10] | Kimutai, C. J., & Jagongo, A. (2013). Factors influencing credit rationing by commercial banks in Kenya. International Journal of Humanities and Social Science, 3 (20), 244-252. |
| [11] | Saunders, M., Lewis, P., & Thornhill, A. (2015). Research methods for business students. Essex. Financial Times/Prentice Hall. |
| [12] | Blanchard, O. (2019). Public debt and low interest rates. American Economic Review, 109 (4), 1197-1229. |
| [13] | Crawford, N. C. (2019). United States budgetary costs and obligations of post-9/11 wars through FY2020: $6.4 trillion. Costs of War. |
| [14] | Schauten, M., & Blom, J. (2006). Corporate governance and the cost of debt. Available at SSRN 933615. |
| [15] | Cowling, M., Ughetto, E., & Lee, N. (2018). The innovation debt penalty: Cost of debt, loan default, and the effects of a public loan guarantee on high-tech firms. Technological Forecasting and Social Change, 127, 166-176. |
| [16] | Dhaliwal, D. S., Gleason, C. A., Heitzman, S., & Melendrez, K. D. (2008). Auditor fees and cost of debt. Journal of accounting, auditing & finance, 23 (1), 1-22. |
| [17] | Olarewaju, O., & Msomi, T. (2021). Factors affecting small and medium enterprises’ financial sustainability in South Africa. African Journal of Inter/Multidisciplinary Studies, 3 (1), 103-117. |
| [18] | Abebaw, W. K., Mulate, S., & Nigussie, L. (2018). Factors affecting the performance of micro and small-scale enterprises: Experience from North Shewa Zone, Ethiopia. Journal of Investment and Management, 7 (2), 70-76. |
| [19] | Onsongo, S. K., Muathe, S., & Mwangi, L. W. (2020). Financial risk and financial performance: evidence and insights from commercial and services listed companies in Nairobi securities exchange, Kenya. International Journal of Financial Studies, 8 (3), 51. |
| [20] | Chukhrova, N., & Johannssen, A. (2019). Fuzzy regression analysis: systematic review and bibliography. Applied Soft Computing, 84, 105708. |
| [21] | Jun, E., Birchfield, M., De Moura, N., Heer, J., & Just, R. (2022). Hypothesis formalization: Empirical findings, software limitations, and design implications. ACM Transactions on Computer-Human Interaction (TOCHI), 29 (1), 1-28. |
| [22] | Ehrhardt, M. C., & Brigham, E. F. (2016). Corporate finance: A focused approach. Cengage learning. |
| [23] | Xiang, D., & Worthington, A. C. (2017). The impact of government financial assistance on the performance and financing of Australian SMEs. Accounting Research Journal. |
| [24] | Miranti, P. J. (2016). Genealogy of American Finance by Robert E. Wright and Richard Sylla. Enterprise & Society, 17 (4), 931-933. |
| [25] | Alamad, S. (2019). Financial and accounting principles in Islamic finance. Springer International Publishing. |
| [26] | Ghosh, P. K., Ghosh, S. K., & Chowdhury, S. (2018). Factors hindering women entrepreneurs’ access to institutional finance-an empirical study. Journal of Small Business & Entrepreneurship, 30 (4), 279-291. |
| [27] | Kumar, R. (2019). Research methodology: A step-by-step guide for beginners. Sage Publications Limited. |
| [28] | Bresler, L., & Stake, R. E. (2017). Qualitative research methodology in music education. In Critical Essays in Music Education (pp. 113-128). Routledge. Choosing among five approaches. |
| [29] | Creswell, J. W., & Poth, C. N. (2016). Qualitative inquiry and research design: Choosing among five approaches. Sage publications. |
APA Style
Abdikadir Noor Fidow. (2022). Deterrents of Access to Debt Capital for Small and Medium Enterprises in Nairobi. International Journal of Accounting, Finance and Risk Management, 7(4), 157-163. https://doi.org/10.11648/j.ijafrm.20220704.13
ACS Style
Abdikadir Noor Fidow. Deterrents of Access to Debt Capital for Small and Medium Enterprises in Nairobi. Int. J. Account. Finance Risk Manag. 2022, 7(4), 157-163. doi: 10.11648/j.ijafrm.20220704.13
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.ijafrm.20220704.13,
author = {Abdikadir Noor Fidow},
title = {Deterrents of Access to Debt Capital for Small and Medium Enterprises in Nairobi},
journal = {International Journal of Accounting, Finance and Risk Management},
volume = {7},
number = {4},
pages = {157-163},
doi = {10.11648/j.ijafrm.20220704.13},
url = {https://doi.org/10.11648/j.ijafrm.20220704.13},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijafrm.20220704.13},
abstract = {Since thirties access to debt capital has been considered as one of the main challenges facing the growth of Small businesses in the world. Empirical studies in developed countries focused on access to debt capital without considering the cost of that debt, due to the fact that the cost of debt is cheaper in developed countries. However, this is not the case in the developing economies such as Kenya due to lack of financial transparency, high interest rate, high risk, and poor financial reporting. This study endeavored to investigate the hindrance of small businesses to access debt capital in Nairobi, Kenya. In addition, the study used loan-pricing theory (LPT) to clarify the theoretical explanation of factors that hinder Kenyan SMEs to access debt capital. Factors that this study investigated are: cost of debt (CD), faith prohibition (FP), and long process (LP). The study applied regression and correlation to analyze the collected data using SPSS. The analysis revealed significant relationship between cost of debt and access to debt capital. There was also significant relationship between long process and access to debt capital. But the relationship between faith prohibition and access to debt capital was insignificant. The study concluded that the government should facilitate cheap finances for small businesses to enable them access to debt capital and improve their performance. Developing online loan facilities should reduce the long process and sizeable paper work of accessing debt capital. The government should connect the grid to small businesses and encourage virtual lenders to lend out a sizable portion of their credits.},
year = {2022}
}
TY - JOUR T1 - Deterrents of Access to Debt Capital for Small and Medium Enterprises in Nairobi AU - Abdikadir Noor Fidow Y1 - 2022/12/15 PY - 2022 N1 - https://doi.org/10.11648/j.ijafrm.20220704.13 DO - 10.11648/j.ijafrm.20220704.13 T2 - International Journal of Accounting, Finance and Risk Management JF - International Journal of Accounting, Finance and Risk Management JO - International Journal of Accounting, Finance and Risk Management SP - 157 EP - 163 PB - Science Publishing Group SN - 2578-9376 UR - https://doi.org/10.11648/j.ijafrm.20220704.13 AB - Since thirties access to debt capital has been considered as one of the main challenges facing the growth of Small businesses in the world. Empirical studies in developed countries focused on access to debt capital without considering the cost of that debt, due to the fact that the cost of debt is cheaper in developed countries. However, this is not the case in the developing economies such as Kenya due to lack of financial transparency, high interest rate, high risk, and poor financial reporting. This study endeavored to investigate the hindrance of small businesses to access debt capital in Nairobi, Kenya. In addition, the study used loan-pricing theory (LPT) to clarify the theoretical explanation of factors that hinder Kenyan SMEs to access debt capital. Factors that this study investigated are: cost of debt (CD), faith prohibition (FP), and long process (LP). The study applied regression and correlation to analyze the collected data using SPSS. The analysis revealed significant relationship between cost of debt and access to debt capital. There was also significant relationship between long process and access to debt capital. But the relationship between faith prohibition and access to debt capital was insignificant. The study concluded that the government should facilitate cheap finances for small businesses to enable them access to debt capital and improve their performance. Developing online loan facilities should reduce the long process and sizeable paper work of accessing debt capital. The government should connect the grid to small businesses and encourage virtual lenders to lend out a sizable portion of their credits. VL - 7 IS - 4 ER -
Information
Email: