Macroeconomic Factors Affecting Commercial Banks’ Credit to Small And Medium-Sized Enterprises in Kenya.

Abstract

Bank credit to the SMEs in Kenya remains relatively low by international standards, and by holding other factors constant, there is potential for credit growth. However, several factors come into play with regard to the proportion of credit to the SME sector. From this background, the current study will seek to examine the determinants of bank credit to the SME sector in Kenya. The financial intermediation theory, financial liberalization theory and credit risk theory provided the theoretical justification of the study. This study adopted a causal research design to focus on establishing the causal relationships between the dependent and independent variables. Quantitative secondary data was adopted in this study and collected using a data collection instrument. Monthly time series data for the period 2008 to 2021 retrieved from the Central Bank of Kenya reports, Kenya National Bureau of Statistics, and World Bank reports was used. The study used both descriptive and inferential methods to analyze data. The findings from this study support the intuition from empirical evidence and theoretical framework that credit in commercial banks is determined by macroeconomic factors. This means that commercial credit in Kenya are determined by GDP, Inflation, interest rates & Exchange rates when all working simultaneously.