Unlocking Finance: Collateral Requirement and Access to Credit among Small and Medium Enterprises in Murang’a County, Kenya

Access to credit remains a persistent challenge for Small and Medium Enterprises (SMEs) particularly in developing economies where financial ecosystems are still evolving. This study investigates the crucial role that collateral requirements play in determining credit accessibility for SMEs in Murang’a County, Kenya. Using a descriptive research design while drawing on empirical data from150 SMEs owners, the research explores how collateral thresholds influence loan approval rates, the types of collateral demanded and the subsequent effects on business growth and sustainability. The findings reveal that while collateral serves as a risk mitigation tool for lenders, it often excludes viable SMEs lacking fixed assets thereby perpetuating financial exclusion. Moreover, the study uncovers a gap between policy intentions and on-the-ground lending practices highlighting the need for more inclusive financial instruments. By unlocking the barriers posed by stringent collateral demands, the paper advocates for adaptive lending models that recognize the unique realities of SMEs. The insights offer valuable implications for policymakers, financial institutions and development partners seeking to foster a more inclusive financial landscape in Murang’a county and similar contexts.