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Credit guarantee schemes and MSME financing in Kenya: A firm-level analysis

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Listed:
  • Muli, Anthony
  • Ndwiga, David
  • Agung, Raphael
  • Njoroge, Samantha

Abstract

The study seeks to examine the effects of credit guarantee schemes on Micro, Small and Medium-sized Enterprises (MSME) lending. Specifically, the paper examined the performance of a specified credit guarantee scheme, effect of the credit guarantee scheme on MSME loan default probability and how loan repayment performs across different sectors. The study utilised bank level data for 2,398 MSMEs under the specified credit guarantee scheme. The study found that the credit guarantee scheme improves MSMEs access to formal credit. Furthermore, low default rate was reported based on firm count. Regarding credit guarantee coverage ratio - default probability nexus, this study established existence of moral hazard effect which is statistically significant. However, across different sectors, short run models find credit guarantee moral hazard sectoral bias, largely elevated in agriculture, building and construction, trade and manufacturing sectors. Additionally, default risk was found to reduce with firm age.

Suggested Citation

  • Muli, Anthony & Ndwiga, David & Agung, Raphael & Njoroge, Samantha, 2026. "Credit guarantee schemes and MSME financing in Kenya: A firm-level analysis," KBA Centre for Research on Financial Markets and Policy Working Paper Series 97, Kenya Bankers Association (KBA).
    • Handle: RePEc:zbw:kbawps:340176
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    References listed on IDEAS

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    1. Beck, Thorsten & Klapper, Leora F. & Mendoza, Juan Carlos, 2010. "The typology of partial credit guarantee funds around the world," Journal of Financial Stability, Elsevier, vol. 6(1), pages 10-25, April.
    2. Cowan, Kevin & Drexler, Alejandro & Yañez, Álvaro, 2015. "The effect of credit guarantees on credit availability and delinquency rates," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 98-110.
    3. ., 2021. "Submit your papers to the right journal," Chapters, in: How to Enhance Your Research, chapter 70, pages 188-189, Edward Elgar Publishing.
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