IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2017-04-31.html
   My bibliography  Save this article

Historical Incidences of Credit Rationing among Micro and Small Enterprises in Kenya

Author

Listed:
  • Kenneth Majau Mugambi

    (Department of Accounting, Finance and Economics, Kenya Methodist University, Meru, Kenya,)

  • A. van der Merwe

    (Department of Public Management, Law and Economics, Durban University of Technology, Durban, Kenya.)

Abstract

In the mid-2000s, the Government of Kenya recognized the existence of institutional barriers preventing micro and small enterprises (MSEs) from directly accessing credit from financial institutions. This development informed the change of lending policy from direct lending to group lending in government supported programmes. However, this change was effected without a comprehensive theoretical and empirical examination of the underlying reasons why MSEs failed to access credit. This study fills this gap by investigating the underlying reasons MSEs were credit rationed in Kenya. The general consensus from this study is that there was a high incidence of credit rationing in Kenya in 1990s and 2000s which stemmed from information asymmetry. The study concludes that the Government's current policy of promoting group lending is indeed workable if the mode can assist in mitigating information asymmetry in credit markets.

Suggested Citation

  • Kenneth Majau Mugambi & A. van der Merwe, 2017. "Historical Incidences of Credit Rationing among Micro and Small Enterprises in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 229-236.
    • Handle: RePEc:eco:journ1:2017-04-31
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijefi/article/download/4810/pdf
    Download Restriction: no
    File URL: https://www.econjournals.com/index.php/ijefi/article/view/4810/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Paxton, Julia & Graham, Douglas & Thraen, Cameron, 2000. "Modeling Group Loan Repayment Behavior: New Insights from Burkina Faso," Economic Development and Cultural Change, University of Chicago Press, vol. 48(3), pages 639-655, April.
    2. Hillier, Brian & Ibrahimo, M V, 1993. "Asymmetric Information and Models of Credit Rationing," Bulletin of Economic Research, Wiley Blackwell, vol. 45(4), pages 271-304, October.
    3. Beck, T.H.L., 2000. "Impediments to the development and efficiency of financial intermediation in Brazil," Other publications TiSEM 4ff22952-305a-44ed-b4ee-d, Tilburg University, School of Economics and Management.
    4. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
    5. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    6. Zeller, Manfred, 1994. "Determinants of credit rationing: A study of informal lenders and formal credit groups in Madagascar," World Development, Elsevier, vol. 22(12), pages 1895-1907, December.
    7. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    8. Martin H. Wolfson, 1996. "A Post Keynesian Theory of Credit Rationing," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 18(3), pages 443-470, March.
    9. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
    10. Jonathan Conning & Michael Kevane, 2002. "Why Isn't There More Financial Intermediation in Developing Countries?," WIDER Working Paper Series DP2002-28, World Institute for Development Economic Research (UNU-WIDER).
    11. Rosemary Atieno, 2001. "Formal and informal institutions’ lending policies and access to credit by small-scale enterprises in Kenya: An empirical assessment," Working Papers 111, African Economic Research Consortium, Research Department.
    12. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    13. Poirier, Dale J., 1980. "Partial observability in bivariate probit models," Journal of Econometrics, Elsevier, vol. 12(2), pages 209-217, February.
    14. Ranjula Bali Swain, 2002. "Credit Rationing In Rural India," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 27(2), pages 1-20, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ta Nhat Linh & Hoang Thanh Long & Le Van Chi & Le Thanh Tam & Philippe Lebailly, 2019. "Access to Rural Credit Markets in Developing Countries, the Case of Vietnam: A Literature Review," Sustainability, MDPI, vol. 11(5), pages 1-18, March.
    2. Martin Petrick, 2005. "Empirical measurement of credit rationing in agriculture: a methodological survey," Agricultural Economics, International Association of Agricultural Economists, vol. 33(2), pages 191-203, September.
    3. Li, Rui & Li, Qinghai & Huang, Shaoan & Zhu, Xi, 2013. "The credit rationing of Chinese rural households and its welfare loss: An investigation based on panel data," China Economic Review, Elsevier, vol. 26(C), pages 17-27.
    4. Togba, Edith Leadaut, 2012. "Microfinance and households access to credit: Evidence from Côte d’Ivoire," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 473-486.
    5. Kausik Chaudhuri & Mary M. Cherical, 2012. "Credit rationing in rural credit markets of India," Applied Economics, Taylor & Francis Journals, vol. 44(7), pages 803-812, March.
    6. Khoi, Phan Dinh & Gan, Christopher & Nartea, Gilbert V. & Cohen, David A., 2013. "Formal and informal rural credit in the Mekong River Delta of Vietnam: Interaction and accessibility," Journal of Asian Economics, Elsevier, vol. 26(C), pages 1-13.
    7. Okten, Cagla & Osili, Una Okonkwo, 2004. "Social Networks and Credit Access in Indonesia," World Development, Elsevier, vol. 32(7), pages 1225-1246, July.
    8. Uduakobong Inyang, 2022. "Risks to credit access in a developing economy:Focus on household characteristics and the choice of credit in the Niger Delta Region of Nigeria," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(2), pages 228-240, March.
    9. Niels Hermes & Robert Lensink & Habteab Mehrteab, 2006. "Does the Group Leader Matter? The Impact of Monitoring Activities and Social Ties of Group Leaders on the Repayment Performance of Group‐based Lending in Eritrea," African Development Review, African Development Bank, vol. 18(1), pages 72-97.
    10. Joel M. Guttman, 2006. "Repayment Performance in Group Lending Programs: A Survey," NFI Working Papers 2006-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    11. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    12. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, in: Robert Evenson & Prabhu Pingali (ed.), Handbook of Agricultural Economics, edition 1, volume 3, chapter 56, pages 2857-2908, Elsevier.
    13. Gustavo Barboza & Sandra Trejos, 2009. "Micro Credit in Chiapas, México: Poverty Reduction Through Group Lending," Journal of Business Ethics, Springer, vol. 88(2), pages 283-299, September.
    14. Parker, Simon C, 2002. "Do Banks Ration Credit to New Enterprises? And Should Governments Intervene? President's Lecture Delivered at the Annual General Meeting of the Scottish Economic Society 4-5 September 2001," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 162-195, May.
    15. Boucher, Stephen R. & Guirkinger, Catherine, 2007. "AJAE Appendix: Risk, Wealth and Sectoral Choice in Rural Credit Markets," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 89(4), pages 1-4, November.
    16. Craig P. Aubuchon & Rajdeep Sengupta, 2008. "The microfinance revolution: an overview," Review, Federal Reserve Bank of St. Louis, vol. 90(Jan), pages 9-30.
    17. Emilios Galariotis & Christophe Villa & Nurmukhammad Yusupov, 2011. "Recent Advances in Lending to the Poor with Asymmetric Information," Journal of Development Studies, Taylor & Francis Journals, vol. 47(9), pages 1371-1390, July.
    18. de Janvry, Alain & McIntosh, Craig & Sadoulet, Elisabeth, 2010. "The supply- and demand-side impacts of credit market information," Journal of Development Economics, Elsevier, vol. 93(2), pages 173-188, November.
    19. Mathilde Maîtrot & Miguel Niño-Zarazúa, 2017. "Poverty and wellbeing impacts of microfinance: What do we know?," WIDER Working Paper Series wp-2017-190, World Institute for Development Economic Research (UNU-WIDER).
    20. Laffont, Jean-Jacques, 2003. "Collusion and group lending with adverse selection," Journal of Development Economics, Elsevier, vol. 70(2), pages 329-348, April.

    More about this item

    Keywords

    Credit Rationing; Information Asymmetry; Micro and Small Enterprises;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2017-04-31. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.