Abstract:
This study investigates the impact of
traditional bank loans on the financial
performance of Small and Medium
Enterprises (SMEs) in Baringo Central
Sub-County, Kenya. Despite SMEs
contributing approximately 78% to
employment and over 30% to GDP
(Kenyan National Bureau of Statistics,
2022), only 17% in rural areas like Baringo
Central have access to formal credit (World
Bank, 2023). Using a descriptive survey of
222 SME owners and managers, the
findings reveal a predominantly negative
perception of bank loans, with an overall
mean score of 2.32 out of 5, indicating
disagreement with statements about loan
accessibility, affordability, and impact.
Specifically, 63% of SMEs operate
informally without access to formal credit
(Kenyan Central Bank, 2022), and
respondents generally disagreed that bank
loans had improved their financial
performance or growth prospects. The
study concludes that rigid application
procedures, high interest rates, and
collateral requirements hinder SMEs’
access to and effective use of bank credit,
limiting their growth potential. It
recommends that financial institutions and
policymakers develop more flexible,
tailored financial products to enhance
access and foster sustainable growth in
rural communities.
