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.