Assessing The Impact Of Traditional Bank Loans On The Financial Performance Of Small And Medium Enterprises In Baringo Central Sub-County: A Theoretical And Empirical Analysis

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.