My Proposal 2

NON-BANKING SOURCES OF FINANCE FOR MICRO AND SMALL ENTERPRISES IN KENYA

BY HANSA VASANT SANGHANI

UNITED STATES INTERNATIONAL UNIVERSITY

FALL 2009

NON-BANKING SOURCES OF FINANCE FOR MICRO AND SMALL ENTERPRISES IN KENYA

BY HANSA VASANT SANGHANI

A Project Proposal Submitted to the School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY

FALL 2009

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ABSTRACT

The purpose of this study is to determine the alternative sources of finance in Kenya that micro and small enterprises can opt for apart from the most popular bank loans, overdrafts and other bank borrowings. This study is guided by the following three research questions: (i) What are the alternative non-banking sources of finance available for micro and small enterprises in Kenya? (ii)Why do micro and small enterprises in Kenya underrate the alternative sources of finance available despite the hardships they face when borrowing funds through banks? and (iii) What impact will the non-banking sources of finance available in Kenya have on the chances of success and consequently the profitability of micro and small enterprises?

A survey research design approach is going to be employed to collect data from micro and small enterprises in Kenya to determine the objectives of this paper. This study will be of great importance to micro and small enterprises by opening their eyes to alternative sources of finance and probably giving them a better chance of survival, growth and success in the global competitive corporate setting.

TABLE OF CONTENTS

ABSTRACT………………………………………………………………………………...…i TABLE OF CONTENTS…………………………………………………………………..…ii LIST OF ABBREVIATIONS……….………………………………………………………..v

CHAPTER1………………………………….…………………………………….……........1 1.0 INTRODUCTION………………………..……………………………………..….........1 1.1 Background to the Problem...……………………………………………...……...1 1.2 Statement of the Problem……………….………………………………….….......5 1.3 Purpose of the Study………………….……………………………………..........6 1.4 Research Questions………………….……………………………………….........6 1.5 Importance of the Study….………….…………………………………..…….…..6 1.5.1

Researchers and Academicians ………………………………….……6

1.5.2

Micro and Small Enterprises …………………………………….……7

1.5.3

Non-Bank Credit Lending Institutions………………………………...7

1.5.4

Government of Kenya…………………………………………………7

1.5.5

Economy of Kenya……………………………………………………7

1.6 Scope of the Study……....………….………………………………….……….....7 1.7 Definition of Terms……...….…….………………………………..…….….…….8 1.7.1

Non-Bank Sources of Finance….……………………………………..8

1.7.2

Micro and Small Enterprises …………………………………….……8

1.8 Chapter Summary………...………..………………………………..……….........8 4

CHAPTER 2………………………………………………………………………….….........9 2.0 LITERATURE REVIEW.………………..………………………………………….........9 2.1 Introduction………………………………………………………………...……...9 2.2 Non-Banking sources of Finance……….……………………...………….…........9 2.2.1

Internal Strategies for Non-Banking Sources of Finance……...……...9 2.2.1.1 Use of Purchase Order………………………………..………9 2.2.1.2 Factoring Finance………………………………………...…..10 2.2.1.3 Advances from Customers…………………...………………10 2.2.1.4 Trade Credit…………………………………...……………..10 2.2.1.5 Sale of Assets…………………………………………...……10 2.2.1.6 Retained Profits…………………………..………………….10

2.2.2

External Strategies for Non-Banking Sources of Finance…..……….11 2.2.2.1 Venture Capital……..……………..…………………………11 2.2.2.2 Government Assistance...…………………………………....11 2.2.2.3 Business Angels………….…………………..………………11 2.2.2.4 Loan Stock...……………………………………..…………..12 2.2.2.5 Debentures….……………………………………..…………12 2.2.2.6 Franchising…………………………………………..……….12 2.2.2.7 Grants…………………………………..…………………….13 2.2.2.8 Rotating Savings and Credit Association (ROSCA)…..…….13 2.2.2.9 Hire Purchase…………………..…………………………….13 2.2.2.10Leasing…………………………………………...……….....14 2.2.2.11Personal Savings and loans from family and friends……..…14

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2.3 Reasons for underrating Non-Banking Sources of Finance………………….......14 2.4 Impact of Non-Banking Sources of Finance on profitability …………………....16 2.5 Chapter Summary………...………………………………………..……….........16

REFERENCES……………………………….………………….…………………….……17

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LIST OF ABBREVIATIONS

SME – Small and Medium Enterprises MSE – Micro and Small Enterprises ROSCA – Rotating Savings and Credit Association

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CHAPTER I 1.0 INTRODUCTION 1.1 Background to the Problem Micro and Small Enterprises (MSEs) are widely defined in terms of their characteristics, which include the size of capital investment, the number of employees, the turnover, the management style, the location and the market share (Kasekende and Opondo, 2003). According to World Development Indicators Database Micro, small, and medium-size enterprises are business that may be defined by the number of employees. There is no international standard definition of firm size; however, many institutions that collect information use the following size categories: micro enterprises have 0-9 employees, small enterprises have 10-49 employees, and medium-size enterprises have 50-249 employees.

Credit is the lifeline of business. Small businesses lack access to capital and money markets. Investors are unwilling to invest in proprietorships, partnerships or unlisted companies. As risk perception about small businesses is high. So is the cost of capital, institutional credit, when available, requires collateral which in turn makes the owner of the unit even more vulnerable to foreclosure. Despite efforts by financial institutions and public sector bodies to close funding gaps, Small and Medium Enterprises (SMEs) continue to experience difficulty in obtaining capital. These funding gaps relate to firm size, risk, knowledge and flexibility. In addition, SME borrowing requirements are small and more collateral may be required than SMEs can pledge. Further, the financial institutions may lack expertise in understanding SMEs and also flexibility in terms and conditions of financing that are required by SMEs (PECC, 2003).

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Small firms have traditionally encountered problems when approaching providers of finance for funds to support fixed capital investment and to provide working capital for the firm’s operations. The presence and nature of a “finance gap” for small firms has been debated for decades, ever since the Macmillan Report (Macmillan, 1931).

According to Tucker and Lean (2003) one of the problems faced by small firms when attempting to raise finance is information asymmetry in that they cannot prove the quality of its investment projects to the provider of finance (usually the bank). Small firm managers often suffer from a lack of financial sophistication, as they are often product or service specialists, not specialists in the area of finance. Thus, the information asymmetry problem is partly one relating to difficulties in the spheres of communication and credibility. This is compounded by the fact that new or recent start-up businesses may be unable to provide evidence of a good financial performance track record. Banks in particular rely on past financial performance as an indicator of the future profitability of projects. Other small firm financing problems relate to the characteristics of the firm itself and the attitude and objectives of the owner-manager. Such characteristics include their diversity, their higher risk, their inability to provide strong collateral, and stage of development effects.

According to Titman, Fan, and Twite (2003), a principal source of the financial constraint, influencing capital-structure, may be the existence of asymmetric information and the cost of contracting between companies and potential providers of external financing. Problems of financial constraint are potentially high in presence of a poorly developed financial system. A well-developed financial system can facilitate the ability of a company to gain access to

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external financing, providing cheaper finance to worthy companies (Guiso, Sapienza, and Zingales, 2004).

Owing to the lack of business experience of many small owner-managers in the early years of the business, business risk may be more significant than for larger firms. Small firms generally have smaller financial reserves to draw on in times of crisis and are also relatively highly geared compared to larger firms due to the difficulty and expense of attracting new equity finance. Thus, such firms are characterized not only by higher business risk but also higher financial distress risk. Banks tend to respond to this risk by adopting a capital-gearing rather than an income-gearing approach to lending. Thus, rather than focusing their attention on evaluating the income streams flowing from an investment project, they may focus more on the value of collateral available in the event of financial distress. This creates a problem for small firms in that they often do not have significant fixed assets to secure on in their early years of establishment. The stage of development, then, may be an important determinant of, and constraint on, the type and amount of external finance raised. Small firm financing, then, will typically be heavily secured debt, with few incidences of external risk capital contribution (Cruickshank, 2000).

The attitude and objectives of the owner-manager can exert an important impact on the firm’s ability to secure external finance. Such managers are often unwilling to provide personal assets as collateral. Furthermore, many small businesses have objectives other than growth as a priority (e.g. “lifestyle businesses”). However, Binks and Ennew (1996) argue that many small firms will be forced to provide yield expansion to protect their limited liability status

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(which would otherwise be eroded by the provision of personal assets as loan collateral). A primary motive for starting a small business is to exert greater control over the work environment and to internalize the benefits of personal effort and risk-taking. In this regard, then, it is understandable that many small business managers would not countenance any dilution of this control through the introduction of outside equity from venture capitalists or business angels. Thus, the attitudes of managers may sometimes constitute an important constraint on the range of external financing sources available to the firm.

Generating an entrepreneurial idea is one thing but accessing the necessary finance to translate such ideas into reality is another. Many novel entrepreneurial ideas have been known to die simply because their originators could not fund them, and banks could not be convinced that they were worth investing in. To fund a business idea, there are two major sources to access; internal and external finance. Internal finance is concerned with sourcing funds through personal savings, and those of friends and relatives. However, as the firm grows its financing requirements may go beyond personal savings. The next source is external finance. External funding is based on merit according to the evaluation of financial institutions. There are two notable variants of external finance: debt financing and equity financing. Debt financing involves the procurement of interest bearing instruments. They are secured by asset-based collateral and have term structures, that is, either short or long term. The equity component of external finance gives the financier the right of ownership in the business and as such may not require collateral since the equity participant will be part of the management of the business (Ogujiuba, Ohuche, and Adenuga, 2004).

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1.2 Statement of the Problem Lack of access to credit is almost universally indicated as a key problem for micro and small enterprises. This affects technology choice by limiting the number of alternatives that can be considered. Many micro and small enterprises may use an inappropriate technology because it is the only one they can afford. In some cases, even where credit is available mainly through banks, the entrepreneur may lack freedom of choice because the bank’s lending conditions may force the purchase of heavy, immovable equipment that can serve as collateral for the bank. Credit constraints operate in variety of ways in Kenya where undeveloped capital market forces entrepreneurs to rely on self-financing or borrowing from friends or relatives. Lack of access to long-term credit for small enterprises forces them to rely on high cost short term finance. There are various other financial challenges that face small enterprises. They include the high cost of credit, high bank charges and fees. The scenario witnessed in Kenya particularly during the climaxing period of the year 2008 testifies the need for credit among the common and low earning entrepreneurs. Numerous money lenders in the name of Pyramid schemes came up, promising hope among the ‘little investors,’ through which they can make it to the financial freedom through soft borrowing. The rationale behind turning to these schemes among a good number of entrepreneurs is mainly to seek alternatives and soft credit with low interest rates while making profits. Financial constraint remains a major challenge facing micro and small enterprises in Kenya (Wanjohi and Mugure, 2008).

Lack of working capital is the most important reason for business closure. Lack of credit is the second severest problem faced by MSEs (Kimunyu and Omiti, 2000).

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1.3 Purpose of the Study The purpose of this study is to determine the non-banking sources of finance in Kenya that micro and small enterprises can opt for.

1.4 Research Questions This study is guided by the following research questions devised to support in gathering the information regarding the research topic. i)

What are the non-banking sources of finance available for micro and small enterprises in Kenya?

ii)

Why do micro and small enterprises in Kenya underrate the alternative sources of finance available despite the hardships they face when borrowing funds through banks? and

iii)

What impact will the non-banking sources of finance available in Kenya have on the chances of success and consequently the profitability of micro and small enterprises?

1.5 Importance of the Study 1.5.1 Researchers and Academicians This study will be of great importance to other researchers and academicians who seek to understand why micro and small enterprises underrate alternative sources of finance apart from bank borrowings despite the relatively high costs and strict borrowing terms impended on them by banks.

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1.5.2 Micro and small enterprises The study will assist micro and small enterprises by opening their eyes to alternative sources of finance and probably giving them a better chance of survival, growth and success in the global competitive corporate setting.

1.5.3 Non-Bank Credit Lending Institutions The Non-Banking Credit Lending Institutions can use the research paper to find out reasons why MSEs do not prefer to use their services and improve on those areas to increase their customer base and consequently their profits.

1.5.4 Government of Kenya The government of Kenya can use this research paper to design policies that are meant to enhance access to credit by MSEs and they contribute significantly to the growth and development of Kenya.

1.5.5 Economy of Kenya Micro and Small enterprise play a significant role in socio-economic development process of Kenya by contributing significantly to overall growth in terms of Gross Domestic Product, creating employment and exports. They are the backbone of any economy.

1.6 Scope of the Study The study is going to target micro and small enterprises in Nairobi. The population sample will be taken from Nairobi only because of limited time and finances available to carry out

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the research. Nairobi is also selected as the population sample area because it hosts a number of micro and small enterprises.

1.7 Definition of Terms 1.7.1 Non-Banking sources of Finance Sources of finance other than banks (Nanda, 1999).

1.7.2 Micro, Small and Medium Enterprises In Kenya micro enterprises are those enterprises with 10 or fewer workers, small enterprises have from 11 to 50 workers and medium enterprises have from 51 to 100 workers (Gray, Cooley and Lubatingwa, 1997).

1.8 Chapter Summary This chapter is identifying the research problem based on a review of previous research done in the area of financing of micro and small enterprises. It places the research into context by giving a general background of the study and highlights the purpose of the study, research objectives, its significance and scope. The next chapter will involve a review of existing literature on the other financing options open to micro and small enterprises.

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CHAPTER II 2.0 LITERATURE REVIEW 2.1 Introduction This chapter presents a review of the literature on the basis of the research questions: nonbanking sources of finance, the reason for their underrating and their impact on the profitability of Micro and Small Enterprises (MSEs).

2.2 Non-Banking Sources of Finance MSEs are generally under-capitalized, suggesting major operational difficulties in accessing credit and pursuing corporate goals. MSEs can access non-banking sources of finance either through internal or external strategies.

2.2.1 Internal Strategies for Non-Banking Sources of Finance Internal strategies may not be obvious to any small firm but are learnt through innovation and imitation. Firms that are innovative enough may devise coping strategies to overcome lack of credit. Other firms may imitate these strategies. Some of strategies include the following:

2.2.1.1 Use of purchase order A purchase order is a commercial document issued by a buyer to a seller, indicating the type, quantities and agreed prices for products or services that the seller will provide to the buyer. It is a legal offer made by a buyer to purchase goods or services from a seller. When the seller receives the purchase order from the buyer, a contract is deemed to have been made. Consequently, the seller can use it to obtain materials from a supplier on credit

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2.2.1.2 Factoring finance Factoring occurs when a borrower enters into an agreement with the lender (factor) requiring the factor to purchase the value of its invoices at discount representing the book debts, subject to retention to cater for possible bad debts. Thus, the borrower receives credit not on the basis of creditworthiness but the value of the borrower’s underlying working capital assets. The asset can be in form of accounts receivable or inventory and equipment.

2.2.1.3 Advances from customers MSEs can request their customers to make advance payments so that they can use the funds received to buy their supplies and this helps in reducing the financing burden

2.2.1.4 Trade Credit This source of finance is where suppliers of raw materials allow the buyers to use the goods and pay for them later in a short time usually between 30 to 60 days credit period is given. Trade credit is not easy to get and require long-term relationships to be build with suppliers.

2.2.1.5 Sale of assets Business balance sheets usually have several fixed assets on them. A fixed asset is anything that is not used up in the production of the good or service concerned. At times, one or more of these fixed assets may be surplus to requirements and can be sold.

2.2.1.6 Retained profits When a company makes profits, the profits are retained instead of being issued as dividends

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and used for the financial needs of the company.

2.2.1.7 Bootstrapping

2.2.2 External Strategies for Non-Banking Sources of Finance External strategies arise from external efforts outside the firm from such forces as the state, private sector, or the donor community, either working singly or in partnership through collective action. Some of the strategies include the following:

2.2.2.1 Venture Capital Venture capitals are formal firms that invest money in businesses in return for shares in the business. The venture capital company becomes involved in the business, usually at board level. After a period of three to seven years, the venture capitalists sell their shares, either to the original owner, or to another investor. Venture capitalists normally expect a 30% return.

2.2.2.2 Government Assistance The government provides finance to companies in cash grants and other forms of direct assistance, as part of its policy of helping to develop the national economy, especially in high technology industries and in areas of high unemployment through organizations such as Youth Enterprise Development Fund Kenya.

2.2.2.3 Business Angels

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Business angels are informal investors who are wealthy and entrepreneurial individuals looking to invest in new and growing businesses in return for a share of the equity. They usually have considerable experience of running businesses that they can place at the disposal of the companies in which they invest. Business angels invest at all stages of business development, but predominantly in start up and early stage businesses. The majority of them tend to invest in businesses located within a reasonable distance of where they live.

2.2.2.4 Loan Stock A loan stock is for a fixed amount with a fixed repayment schedule and may appear on a balance sheet with a specific name telling the reader exactly what the loan is and its details. Holders of loan stock are therefore long-term creditors of the company. Loan stock is an attractive source of finance because interest reduces the profits chargeable to corporation tax.

2.2.2.5 Debentures Debentures are loans that are usually secured and are said to have either fixed or floating charges with them. Debenture holders have the right to receive their interest payments before any dividend is payable to shareholders and, most importantly, even if a company makes a loss, it still has to pay its interest charges. If the business fails, the debenture holders will be preferential creditors and will be entitled to the repayment of some or all of their money before the shareholder receives anything.

2.2.2.6 Franchising

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Franchising is a method of expanding business on less capital than would otherwise be needed. Under a franchising arrangement, a franchisee pays a franchisor for the right to operate a local business, under the franchisor's trade name. The franchisor must bear certain costs and will charge the franchisee an initial franchise fee to cover set-up costs, relying on the subsequent regular payments by the franchisee for an operating profit. These regular payments will usually be a percentage of the franchisee's turnover. Although the franchisor will probably pay a large part of the initial investment cost of a franchisee's outlet, the franchisee will be expected to contribute a share of the investment himself. The franchisor may help the franchisee to obtain loan capital to provide his-share of the investment cost.

2.2.2.7 Grants Grants can be an attractive aspect of a company's financing structure. If a company has a specific issue that it wants or needs to deal with then it could find that there are grants available from local councils and other bodies that will help to pay for it.

2.2.2.8 Rotating Savings and Credit Association (ROSCA) As described by Johnson (2004) and Akoten, Sawada and Keijiro (2006) entrepreneurs of small firm use social capital to rely heavily on financial sources such as ROSCA. In this case, several entrepreneurs with the same interest and of good character self-select and form a group. The members decide the number of sittings to hold in a certain period and the amount of money each member is to contribute into the kitty in each sitting. In each sitting, a predetermined amount of money is given to a winner whose position is randomly chosen

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initially by ballot. ROSCA has been an important source of finance in Japan as well as in Kenya for some sectors such as garment.

2.2.2.9 Hire Purchase Hire Purchase is a method of acquiring assets without having to invest the full amount in buying them. Typically, a hire purchase agreement allows the hire purchaser sole use of an asset for a period after which they have the right to buy them, often for a small or nominal amount. The benefit of this system is that companies gain immediate use of the asset without having to pay a large amount for it or without having to borrow a large amount.

2.2.2.10 Leasing A lease is an agreement between two parties, the "lessor" and the "lessee". The lessor owns a capital asset, but allows the lessee to use it. The lessee makes payments under the terms of the lease to the lessor, for a specified period of time. Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars and commercial vehicles, but might also be computers and office equipment.

2.2.2.11 Personal Savings and loans from family and friends Most small businesses get started and operate with money from their savings, family and friends. However, there are also potential problems attached to using 'friendly money'. Ignoring these problems might mean that business comes at a cost by loosing friendships.

2.2.2.12 Micro Finance Institutions

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2.2.2.13 Credit Guarantee Funds

2.2.2.14 Credit Cards

2.3 Reasons for underrating Non-Banking Sources of Finance According to Kimuyu and Omiti (2000) the structure of credit source choices is influenced by formality status, gender of proprietor, location, membership to a support group and business activity in which an enterprise is engaged. Choices of credit sources depend on formality status, gender, location, activity type and networking. The decision on the choice of credit source is partly determined by the information available to the potential borrower on the available sources and their specific requirements. This information is, in turn, influenced by proximity of the different sources and perceptions about the sort of customers that a particular financial institution entertains. Considerations for profit and utility maximization are also considered.

The credit source seeking behavior tends to be a structural phenomenon that is likely to be influenced by attributes specific to both the entrepreneurs and their enterprises. It is also subject to the local credit market environment. Considering that the potential sources are many, the credit source variable tends to be a polytomous response variable that can be modeled using a multinomial logic framework (Madalla, 1983), in which case the sources of credit can be simultaneously explained by a set of enterprise and entrepreneur attributes.

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As put correctly by Agostino, Rocca, M., Rocca T. and Trivieri corporate financing choices are likely to be determined by a host of factors that are related to the characteristics of the firm, as well as to the institutional environment where the latter operates. Although most contributes examine corporate financing choices focusing on firm characteristics, a recent and important strand of the literature studies how institutional factors may affect firms’ capital structure choices (Demirguc-Kunt and Maksimovic 2008, 2002, 1998, 1996a; Cheng and Shiu 2007; Lopez- Iturriaga and Rodriguez-Sanz 2007; Utrero-González 2007; Bianco et al 2005; Giannetti 2003; Titman et al. 2003; Booth et al. 2001; La Porta et al. 1997, 1998; Rajan and Zingales 1995). In addition to this Beck, Demirgüç-Kunt and Maksimovic (2005) point out that market imperfection, such as those caused by underdeveloped financial and legal systems, constrain funding decisions depending on firms’ size. Indeed, investors’ interests and creditors’ protection crucially depend on the extent to which rules are enforced.

Small firms typically find it difficult to borrow from a commercial bank due to inadequate collateral value of assets and unstable cash flows. Moreover, costs of debt financing are usually higher for small firms than for large firms due to the higher credit risk for small firms. Thus according to Fu, T., Ke, M. and Huang, Y. (2002) heavy reliance on debt financing for capital needs may be negatively related to the profitability of small firms. Debt financing also includes the non-banking sources of finance and therefore because of the high cost of credit the management of MSEs may not opt for these alternatives available.

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According to Zavatta (2008) entrepreneurs are often unwilling to relinquish part of the company’s ownership to external investors – they prefer to stay small or struggle to survive with bootstrapping.

2.4 Impact of Non-Banking Sources of Finance on profitability Credit is an important ingredient for firm growth and its accessibility may determine the extent to which a firm will grow over time and hence its capacity to generate increased income and employment opportunities. Without it, various inputs that are used in the firm such as physical capital, labor and raw materials may not be purchased. Therefore, accessibility to credit may determine the extent to which a firm will grow over time in terms of the number of workers or value added. When credit is available, production is likely to be enhanced. For instance, Feder, Gershon, Lau, Lin and Luo (1990) estimate that an additional yuan of credit would yield 0.235 yuan of additional gross value of output in china (Akoten, 2007).

According to one major difficulty small firms have is the lack of financial capital. The constraint on financial capital might have a significant impact on the profitability of small firms. If financial capital plays an important role in the profitability of small firms, it would be interesting to answer a further question on the relationship between profitability and different sources of financing. Access to finance is an essential ingredient for successful enterprise development (Fu, T., Ke, M. and Huang, Y., 2002). Firms need to invest in research and development, human capital, tangible assets and others in order to maintain and enhance their competitiveness (Pinto, 2004).

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2.5 Chapter Summary This chapter reviewed the relevant literature in relation to the research questions presented in this study. It listed and gave a brief description of some of the non-banking sources of finance and the reasons why are overlooked by many MSEs. Finally, the chapter also links profitability of a MSE to the source of finance chosen. Chapter three will describe the methods and procedures used to carry out the study. Specifically, the research design, population and sampling design, data collection methods, research procedures as well as data analysis methods will be addressed.

REFERENCES •

Agostino, M., Rocca, M., Rocca, T. and Trivieri, F. (2008). Local Financial Development and SMEs Capital Structure: An Empirical Investigation. University of Calabria, Italy. [online] Available: http://ssrn.com/abstract=1343136

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Akoten, J., Sawada, Y. and Keijiro, O. (2006). The determinants of credit access and its implications on Micro and Small Enterprises: the case of garment producers in Kenya. Journal of African Economies, forthcoming.

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Akoten J. (2007). Breaking the Vicious Cycle of Poor Access to Credit by Micro and Small Enterprises in Kenya. Institute of Policy Analysis & Research, Discussion Paper No. 095/2007.

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Beck, T., Demirgüç-Kunt, A., Maksimovic, V. (2005). Financial and legal constraints to firm growth: Does size matter?. Journal of Finance, Vol. 60(1), pp. 137-177.

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Binks, M., Ennew, C. and Reed, G. (1991). Small Businesses and their Banks: An International Perspective. National Westminster Bank. London.

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Cruickshank, D. (2000). Competition in UK Banking. HMSO. London.

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Feder, Gershon, Lau J., Lin Y. and Luo X. (1990). The relationship between credit and productivity in Chinese Agriculture: A Microeconomic Model of Disequilibrium. American Journal of Agricultural Economics, Vol. 72, No. 5, pp. 1151-1157.

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Fu, T., Ke, M. and Huang, Y. (2002). Capital growth, financing source and profitability of small businesses: Evidence from Taiwan small enterprises. Small Business Economics, Vol. 18, pp. 257-267.

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Gray, K., Cooley, W. and Lutabingwa, J. (1997). Small Scale Manufacturing in Kenya. Journal of small business management.

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Guiso, L., Sapienza, P. and Zingales, L., (2004). Does Local Financial Development Matter?. Quarterly Journal of Economics 119, 929-969.

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Johnson, S. (2004). Gender Norms in Financial Markets: Evidence from Kenya. World Development, Vol. 32 (August), pp. 1355-1374.

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Kimuyu, P. and Omiti, J. (2000). Institutional Impediments to access to credit by micro and small scale enterprises in Kenya. Institute of Policy Analysis & Research Discussion Paper Series DP No. 026/2000.

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Kasekende, L. and Opondo, H. (2003). Financing Small and Medium Scale Enterprises: Uganda’s Experience. Kampala: Bank of Uganda.

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Macmillan, H. (1931). Report of the Committee on Finance and Industry. CMD 3897. HMSO. London.

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Maddala, G. (1983). Limited-Dependent and Qualitative Variables in Econometrics. Cambridge: Cambridge University Press.

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Nanda, K. (1999). Credit and Banking: What every small entrepreneur (and banker) must know. Response Books. New Dehli.

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Ogujiuba, K., Ohuche, F. and Adenuga, A. (2004). Credit Availability to Small and Medium Scale Enterprises in Nigeria: Importance of New Capital Base for Banks – Background and Issues. Working Paper Department of International Economic Relations, Central Bank of Nigeria.

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Pacific Economic Cooperation Council [PECC]. 2003. Financing Small and Medium Sized Enterprises – Challenges and Options [Online].

Available: http://www.pecc.org/finance/papers/FF-financing-smes(2003).pdf – paper

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Pinto, R. (2004). Access to finance for micro, small and medium sized enterprise development in the Timisoara area, Romania. Stratagem Consulting International

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Titman, S., Fan, J., Twite, G., (2003). An International Comparison of Capital Structure and Debt Maturity Choices. Working paper Social Science Research Network.

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Tucker, J. and Lean, J. (2000). Information asymmetry and small firm finance. Robert Gordon University. Aberdeen. Journal of Small Business and Enterprise Development.

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Wanjohi, A.M. and Mugure, A. (2008). Factors affecting the growth of MSEs in Rural Areas of Kenya: A case of ICT firms in Kiserian Township, Kajiado District of Kenya.

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Zavatta, R. (2008). Financing technology entrepreneurs & SMEs in developing countries: challenges and opportunities. Information for development program. Peru country study. [online] Available: http://www.infoDev.org/PeruCountryStudy_FinancingTechnologySMEs.pdf

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