NON-BANKING SOURCES OF FINANCE FOR MICRO AND

SMALL ENTERPRISES IN KENYA

BY

HANSA VASANT SANGHANI

UNITED STATES INTERNATIONAL UNIVERSITY

FALL 2009
NON-BANKING SOURCES OF FINANCE FOR MICRO AND
SMALL ENTERPRISES IN KENYA

BY

HANSA VASANT SANGHANI

A Project Proposal Submitted to the School of Business in

UNITED STATES INTERNATIONAL UNIVERSITY

FALL 2009

1
 ABSTRACT

The purpose of this study is to determine the alternative sources of finance in Kenya that

micro and small enterprises can opt for apart from the most popular bank loans, overdrafts

and other bank borrowings. This study is guided by the following three research questions:

(i) What are the alternative non-banking sources of finance available for micro and small

enterprises in Kenya? (ii)Why do micro and small enterprises in Kenya underrate the

alternative sources of finance available despite the hardships they face when borrowing funds

through banks? and (iii) What impact will the non-banking sources of finance available in

Kenya have on the chances of success and consequently the profitability of micro and small

enterprises?

A survey research design approach is going to be employed to collect data from micro and

small enterprises in Kenya to determine the objectives of this paper. This study will be of

great importance to micro and small enterprises by opening their eyes to alternative sources

of finance and probably giving them a better chance of survival, growth and success in the

global competitive corporate setting.

ABSTRACT………………………………………………………………………………...…i

TABLE OF CONTENTS…………………………………………………………………..…ii

LIST OF ABBREVIATIONS……….………………………………………………………..v

CHAPTER1………………………………….…………………………………….……........1

1.0 INTRODUCTION………………………..……………………………………..….........1

1.1 Background to the Problem...……………………………………………...……...1

1.2 Statement of the Problem……………….………………………………….….......5

1.3 Purpose of the Study………………….……………………………………..........6

1.4 Research Questions………………….……………………………………….........6

1.5 Importance of the Study….………….…………………………………..…….…..6

1.5.1 Researchers and Academicians ………………………………….……6

1.5.2 Micro and Small Enterprises …………………………………….……7

1.5.3 Non-Bank Credit Lending Institutions………………………………...7

1.5.4 Government of Kenya…………………………………………………7

1.5.5 Economy of Kenya……………………………………………………7

1.6 Scope of the Study……....………….………………………………….……….....7

1.7 Definition of Terms……...….…….………………………………..…….….…….8

1.7.1 Non-Bank Sources of Finance….……………………………………..8

1.7.2 Micro and Small Enterprises …………………………………….……8

1.8 Chapter Summary………...………..………………………………..……….........8

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CHAPTER 2………………………………………………………………………….….........9

2.0 LITERATURE REVIEW.………………..………………………………………….........9

2.1 Introduction………………………………………………………………...……...9

2.2 Non-Banking sources of Finance……….……………………...………….…........9

2.2.1 Internal Strategies for Non-Banking Sources of Finance……...……...9

2.2.1.1 Use of Purchase Order………………………………..………9

2.2.1.2 Factoring Finance………………………………………...…..10

2.2.1.3 Advances from Customers…………………...………………10

2.2.1.4 Trade Credit…………………………………...……………..10

2.2.1.5 Sale of Assets…………………………………………...……10

2.2.1.6 Retained Profits…………………………..………………….10

2.2.2 External Strategies for Non-Banking Sources of Finance…..……….11

2.2.2.1 Venture Capital……..……………..…………………………11

2.2.2.2 Government Assistance...…………………………………....11

2.2.2.3 Business Angels………….…………………..………………11

2.2.2.4 Loan Stock...……………………………………..…………..12

2.2.2.5 Debentures….……………………………………..…………12

2.2.2.6 Franchising…………………………………………..……….12

2.2.2.7 Grants…………………………………..…………………….13

2.2.2.8 Rotating Savings and Credit Association (ROSCA)…..…….13

2.2.2.9 Hire Purchase…………………..…………………………….13

2.2.2.10Leasing…………………………………………...……….....14

2.2.2.11Personal Savings and loans from family and friends……..…14

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 2.3 Reasons for underrating Non-Banking Sources of Finance………………….......14

2.4 Impact of Non-Banking Sources of Finance on profitability …………………....16

2.5 Chapter Summary………...………………………………………..……….........16

REFERENCES……………………………….………………….…………………….……17

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 LIST OF ABBREVIATIONS

SME – Small and Medium Enterprises

MSE – Micro and Small Enterprises

ROSCA – Rotating Savings and Credit Association

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 CHAPTER I

1.0 INTRODUCTION

1.1 Background to the Problem

Micro and Small Enterprises (MSEs) are widely defined in terms of their characteristics,

which include the size of capital investment, the number of employees, the turnover, the

management style, the location and the market share (Kasekende and Opondo, 2003).

According to World Development Indicators Database Micro, small, and medium-size

enterprises are business that may be defined by the number of employees. There is no

international standard definition of firm size; however, many institutions that collect

information use the following size categories: micro enterprises have 0-9 employees, small

enterprises have 10-49 employees, and medium-size enterprises have 50-249 employees.

Credit is the lifeline of business. Small businesses lack access to capital and money markets.

Investors are unwilling to invest in proprietorships, partnerships or unlisted companies. As

risk perception about small businesses is high. So is the cost of capital, institutional credit,

when available, requires collateral which in turn makes the owner of the unit even more

vulnerable to foreclosure. Despite efforts by financial institutions and public sector bodies to

close funding gaps, Small and Medium Enterprises (SMEs) continue to experience difficulty

in obtaining capital. These funding gaps relate to firm size, risk, knowledge and flexibility. In

addition, SME borrowing requirements are small and more collateral may be required than

SMEs can pledge. Further, the financial institutions may lack expertise in understanding

SMEs and also flexibility in terms and conditions of financing that are required by SMEs

(PECC, 2003).

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Small firms have traditionally encountered problems when approaching providers of finance

for funds to support fixed capital investment and to provide working capital for the firm’s

operations. The presence and nature of a “finance gap” for small firms has been debated for

decades, ever since the Macmillan Report (Macmillan, 1931).

According to Tucker and Lean (2003) one of the problems faced by small firms when

attempting to raise finance is information asymmetry in that they cannot prove the quality of

its investment projects to the provider of finance (usually the bank). Small firm managers

often suffer from a lack of financial sophistication, as they are often product or service

specialists, not specialists in the area of finance. Thus, the information asymmetry problem is

partly one relating to difficulties in the spheres of communication and credibility. This is

compounded by the fact that new or recent start-up businesses may be unable to provide

evidence of a good financial performance track record. Banks in particular rely on past

financial performance as an indicator of the future profitability of projects. Other small firm

financing problems relate to the characteristics of the firm itself and the attitude and

objectives of the owner-manager. Such characteristics include their diversity, their higher

risk, their inability to provide strong collateral, and stage of development effects.

According to Titman, Fan, and Twite (2003), a principal source of the financial constraint,

influencing capital-structure, may be the existence of asymmetric information and the cost of

contracting between companies and potential providers of external financing. Problems of

financial constraint are potentially high in presence of a poorly developed financial system. A

well-developed financial system can facilitate the ability of a company to gain access to

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external financing, providing cheaper finance to worthy companies (Guiso, Sapienza, and

Zingales, 2004).

Owing to the lack of business experience of many small owner-managers in the early years

of the business, business risk may be more significant than for larger firms. Small firms

generally have smaller financial reserves to draw on in times of crisis and are also relatively

highly geared compared to larger firms due to the difficulty and expense of attracting new

equity finance. Thus, such firms are characterized not only by higher business risk but also

higher financial distress risk. Banks tend to respond to this risk by adopting a capital-gearing

rather than an income-gearing approach to lending. Thus, rather than focusing their attention

on evaluating the income streams flowing from an investment project, they may focus more

on the value of collateral available in the event of financial distress. This creates a problem

for small firms in that they often do not have significant fixed assets to secure on in their

early years of establishment. The stage of development, then, may be an important

determinant of, and constraint on, the type and amount of external finance raised. Small firm

financing, then, will typically be heavily secured debt, with few incidences of external risk

capital contribution (Cruickshank, 2000).

The attitude and objectives of the owner-manager can exert an important impact on the firm’s

ability to secure external finance. Such managers are often unwilling to provide personal

assets as collateral. Furthermore, many small businesses have objectives other than growth as

a priority (e.g. “lifestyle businesses”). However, Binks and Ennew (1996) argue that many

small firms will be forced to provide yield expansion to protect their limited liability status

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(which would otherwise be eroded by the provision of personal assets as loan collateral). A

primary motive for starting a small business is to exert greater control over the work

environment and to internalize the benefits of personal effort and risk-taking. In this regard,

then, it is understandable that many small business managers would not countenance any

dilution of this control through the introduction of outside equity from venture capitalists or

business angels. Thus, the attitudes of managers may sometimes constitute an important

constraint on the range of external financing sources available to the firm.

Generating an entrepreneurial idea is one thing but accessing the necessary finance to

translate such ideas into reality is another. Many novel entrepreneurial ideas have been

known to die simply because their originators could not fund them, and banks could not be

convinced that they were worth investing in. To fund a business idea, there are two major

sources to access; internal and external finance. Internal finance is concerned with sourcing

funds through personal savings, and those of friends and relatives. However, as the firm

grows its financing requirements may go beyond personal savings. The next source is

external finance. External funding is based on merit according to the evaluation of financial

institutions. There are two notable variants of external finance: debt financing and equity

financing. Debt financing involves the procurement of interest bearing instruments. They are

secured by asset-based collateral and have term structures, that is, either short or long term.

The equity component of external finance gives the financier the right of ownership in the

business and as such may not require collateral since the equity participant will be part of the

management of the business (Ogujiuba, Ohuche, and Adenuga, 2004).

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1.2 Statement of the Problem

Lack of access to credit is almost universally indicated as a key problem for micro and small

enterprises. This affects technology choice by limiting the number of alternatives that can be

considered. Many micro and small enterprises may use an inappropriate technology because

it is the only one they can afford. In some cases, even where credit is available mainly

through banks, the entrepreneur may lack freedom of choice because the bank’s lending

conditions may force the purchase of heavy, immovable equipment that can serve as

collateral for the bank. Credit constraints operate in variety of ways in Kenya where

undeveloped capital market forces entrepreneurs to rely on self-financing or borrowing from

friends or relatives. Lack of access to long-term credit for small enterprises forces them to

rely on high cost short term finance. There are various other financial challenges that face

small enterprises. They include the high cost of credit, high bank charges and fees. The

scenario witnessed in Kenya particularly during the climaxing period of the year 2008

testifies the need for credit among the common and low earning entrepreneurs. Numerous

money lenders in the name of Pyramid schemes came up, promising hope among the ‘little

investors,’ through which they can make it to the financial freedom through soft borrowing.

The rationale behind turning to these schemes among a good number of entrepreneurs is

mainly to seek alternatives and soft credit with low interest rates while making profits.

Financial constraint remains a major challenge facing micro and small enterprises in Kenya

(Wanjohi and Mugure, 2008). 

Lack of working capital is the most important reason for business closure. Lack of credit is

the second severest problem faced by MSEs (Kimunyu and Omiti, 2000).

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1.3 Purpose of the Study

The purpose of this study is to determine the non-banking sources of finance in Kenya that

micro and small enterprises can opt for.

1.4 Research Questions

This study is guided by the following research questions devised to support in gathering the

information regarding the research topic.

i) What are the non-banking sources of finance available for micro and small

enterprises in Kenya?

ii) Why do micro and small enterprises in Kenya underrate the alternative sources of

finance available despite the hardships they face when borrowing funds through

banks? and

iii) What impact will the non-banking sources of finance available in Kenya have on

the chances of success and consequently the profitability of micro and small

enterprises?

1.5 Importance of the Study

1.5.1 Researchers and Academicians

This study will be of great importance to other researchers and academicians who seek to

understand why micro and small enterprises underrate alternative sources of finance apart

from bank borrowings despite the relatively high costs and strict borrowing terms impended

on them by banks.

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1.5.2 Micro and small enterprises

The study will assist micro and small enterprises by opening their eyes to alternative sources

of finance and probably giving them a better chance of survival, growth and success in the

global competitive corporate setting.

1.5.3 Non-Bank Credit Lending Institutions

The Non-Banking Credit Lending Institutions can use the research paper to find out reasons

why MSEs do not prefer to use their services and improve on those areas to increase their

customer base and consequently their profits.

1.5.4 Government of Kenya

The government of Kenya can use this research paper to design policies that are meant to

enhance access to credit by MSEs and they contribute significantly to the growth and

development of Kenya.

1.5.5 Economy of Kenya

Micro and Small enterprise play a significant role in socio-economic development process of

Kenya by contributing significantly to overall growth in terms of Gross Domestic Product,

creating employment and exports. They are the backbone of any economy.

1.6 Scope of the Study

The study is going to target micro and small enterprises in Nairobi. The population sample

will be taken from Nairobi only because of limited time and finances available to carry out

11
the research. Nairobi is also selected as the population sample area because it hosts a number

of micro and small enterprises.

1.7 Definition of Terms

1.7.1 Non-Banking sources of Finance

Sources of finance other than banks (Nanda, 1999).

1.7.2 Micro, Small and Medium Enterprises

In Kenya micro enterprises are those enterprises with 10 or fewer workers, small enterprises

have from 11 to 50 workers and medium enterprises have from 51 to 100 workers (Gray,

Cooley and Lubatingwa, 1997).

1.8 Chapter Summary

This chapter is identifying the research problem based on a review of previous research done

in the area of financing of micro and small enterprises. It places the research into context by

giving a general background of the study and highlights the purpose of the study, research

objectives, its significance and scope. The next chapter will involve a review of existing

literature on the other financing options open to micro and small enterprises.

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 CHAPTER II

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter presents a review of the literature on the basis of the research questions: non-

banking sources of finance, the reason for their underrating and their impact on the

profitability of Micro and Small Enterprises (MSEs).

2.2 Non-Banking Sources of Finance

MSEs are generally under-capitalized, suggesting major operational difficulties in accessing

credit and pursuing corporate goals. MSEs can access non-banking sources of finance either

through internal or external strategies.

2.2.1 Internal Strategies for Non-Banking Sources of Finance

Internal strategies may not be obvious to any small firm but are learnt through innovation and

imitation. Firms that are innovative enough may devise coping strategies to overcome lack of

credit. Other firms may imitate these strategies. Some of strategies include the following:

2.2.1.1 Use of purchase order

A purchase order is a commercial document issued by a buyer to a seller, indicating the type,

quantities and agreed prices for products or services that the seller will provide to the buyer.

It is a legal offer made by a buyer to purchase goods or services from a seller. When the

seller receives the purchase order from the buyer, a contract is deemed to have been made.

Consequently, the seller can use it to obtain materials from a supplier on credit

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2.2.1.2 Factoring finance

Factoring occurs when a borrower enters into an agreement with the lender (factor) requiring

the factor to purchase the value of its invoices at discount representing the book debts,

subject to retention to cater for possible bad debts. Thus, the borrower receives credit not on

the basis of creditworthiness but the value of the borrower’s underlying working capital

assets. The asset can be in form of accounts receivable or inventory and equipment.

2.2.1.3 Advances from customers

MSEs can request their customers to make advance payments so that they can use the funds

received to buy their supplies and this helps in reducing the financing burden

2.2.1.4 Trade Credit

This source of finance is where suppliers of raw materials allow the buyers to use the goods

and pay for them later in a short time usually between 30 to 60 days credit period is given.

Trade credit is not easy to get and require long-term relationships to be build with suppliers.

2.2.1.5 Sale of assets

Business balance sheets usually have several fixed assets on them. A fixed asset is anything

that is not used up in the production of the good or service concerned. At times, one or more

of these fixed assets may be surplus to requirements and can be sold.

2.2.1.6 Retained profits

When a company makes profits, the profits are retained instead of being issued as dividends

14
and used for the financial needs of the company.

2.2.1.7 Bootstrapping

2.2.2 External Strategies for Non-Banking Sources of Finance

External strategies arise from external efforts outside the firm from such forces as the state,

private sector, or the donor community, either working singly or in partnership through

collective action. Some of the strategies include the following:

2.2.2.1 Venture Capital

Venture capitals are formal firms that invest money in businesses in return for shares in the

business. The venture capital company becomes involved in the business, usually at board

level. After a period of three to seven years, the venture capitalists sell their shares, either to

the original owner, or to another investor. Venture capitalists normally expect a 30% return.

2.2.2.2 Government Assistance

The government provides finance to companies in cash grants and other forms of direct

assistance, as part of its policy of helping to develop the national economy, especially in high

technology industries and in areas of high unemployment through organizations such as

Youth Enterprise Development Fund Kenya.

2.2.2.3 Business Angels

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Business angels are informal investors who are wealthy and entrepreneurial individuals

looking to invest in new and growing businesses in return for a share of the equity. They

usually have considerable experience of running businesses that they can place at the

disposal of the companies in which they invest. Business angels invest at all stages of

business development, but predominantly in start up and early stage businesses. The majority

of them tend to invest in businesses located within a reasonable distance of where they live.

2.2.2.4 Loan Stock

A loan stock is for a fixed amount with a fixed repayment schedule and may appear on a

balance sheet with a specific name telling the reader exactly what the loan is and its details.

Holders of loan stock are therefore long-term creditors of the company. Loan stock is an

attractive source of finance because interest reduces the profits chargeable to corporation tax.

2.2.2.5 Debentures

Debentures are loans that are usually secured and are said to have either fixed or floating

charges with them. Debenture holders have the right to receive their interest payments before

any dividend is payable to shareholders and, most importantly, even if a company makes a

loss, it still has to pay its interest charges. If the business fails, the debenture holders will be

preferential creditors and will be entitled to the repayment of some or all of their money

before the shareholder receives anything.

2.2.2.6 Franchising

16
Franchising is a method of expanding business on less capital than would otherwise be

needed. Under a franchising arrangement, a franchisee pays a franchisor for the right to

operate a local business, under the franchisor's trade name. The franchisor must bear certain

costs and will charge the franchisee an initial franchise fee to cover set-up costs, relying on

the subsequent regular payments by the franchisee for an operating profit. These regular

payments will usually be a percentage of the franchisee's turnover. Although the franchisor

will probably pay a large part of the initial investment cost of a franchisee's outlet, the

franchisee will be expected to contribute a share of the investment himself. The franchisor

may help the franchisee to obtain loan capital to provide his-share of the investment cost.

2.2.2.7 Grants

Grants can be an attractive aspect of a company's financing structure. If a company has a

specific issue that it wants or needs to deal with then it could find that there are grants

available from local councils and other bodies that will help to pay for it.

2.2.2.8 Rotating Savings and Credit Association (ROSCA)

As described by Johnson (2004) and Akoten, Sawada and Keijiro (2006) entrepreneurs of

small firm use social capital to rely heavily on financial sources such as ROSCA. In this case,

several entrepreneurs with the same interest and of good character self-select and form a

group. The members decide the number of sittings to hold in a certain period and the amount

of money each member is to contribute into the kitty in each sitting. In each sitting, a

predetermined amount of money is given to a winner whose position is randomly chosen

17
initially by ballot. ROSCA has been an important source of finance in Japan as well as in

Kenya for some sectors such as garment.

2.2.2.9 Hire Purchase

Hire Purchase is a method of acquiring assets without having to invest the full amount in

buying them. Typically, a hire purchase agreement allows the hire purchaser sole use of an

asset for a period after which they have the right to buy them, often for a small or nominal

amount. The benefit of this system is that companies gain immediate use of the asset without

having to pay a large amount for it or without having to borrow a large amount.

2.2.2.10 Leasing

A lease is an agreement between two parties, the "lessor" and the "lessee". The lessor owns a

capital asset, but allows the lessee to use it. The lessee makes payments under the terms of

the lease to the lessor, for a specified period of time. Leasing is, therefore, a form of rental.

Leased assets have usually been plant and machinery, cars and commercial vehicles, but

might also be computers and office equipment.

2.2.2.11 Personal Savings and loans from family and friends

Most small businesses get started and operate with money from their savings, family and

friends. However, there are also potential problems attached to using 'friendly money'.

Ignoring these problems might mean that business comes at a cost by loosing friendships.

2.2.2.12 Micro Finance Institutions

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2.2.2.13 Credit Guarantee Funds

2.2.2.14 Credit Cards

2.3 Reasons for underrating Non-Banking Sources of Finance

According to Kimuyu and Omiti (2000) the structure of credit source choices is influenced

by formality status, gender of proprietor, location, membership to a support group and

business activity in which an enterprise is engaged. Choices of credit sources depend on

formality status, gender, location, activity type and networking. The decision on the choice of

credit source is partly determined by the information available to the potential borrower on

the available sources and their specific requirements. This information is, in turn, influenced

by proximity of the different sources and perceptions about the sort of customers that a

particular financial institution entertains. Considerations for profit and utility maximization

are also considered.

The credit source seeking behavior tends to be a structural phenomenon that is likely to be

influenced by attributes specific to both the entrepreneurs and their enterprises. It is also

subject to the local credit market environment. Considering that the potential sources are

many, the credit source variable tends to be a polytomous response variable that can be

modeled using a multinomial logic framework (Madalla, 1983), in which case the sources of

credit can be simultaneously explained by a set of enterprise and entrepreneur attributes.

19
As put correctly by Agostino, Rocca, M., Rocca T. and Trivieri corporate financing choices

are likely to be determined by a host of factors that are related to the characteristics of the

firm, as well as to the institutional environment where the latter operates. Although most

contributes examine corporate financing choices focusing on firm characteristics, a recent

and important strand of the literature studies how institutional factors may affect firms’

capital structure choices (Demirguc-Kunt and Maksimovic 2008, 2002, 1998, 1996a; Cheng

and Shiu 2007; Lopez- Iturriaga and Rodriguez-Sanz 2007; Utrero-González 2007; Bianco et

al 2005; Giannetti 2003; Titman et al. 2003; Booth et al. 2001; La Porta et al. 1997, 1998;

Rajan and Zingales 1995). In addition to this Beck, Demirgüç-Kunt and Maksimovic (2005)

point out that market imperfection, such as those caused by underdeveloped financial and

legal systems, constrain funding decisions depending on firms’ size. Indeed, investors’

interests and creditors’ protection crucially depend on the extent to which rules are enforced.

Small firms typically find it difficult to borrow from a commercial bank due to inadequate

collateral value of assets and unstable cash flows. Moreover, costs of debt financing are

usually higher for small firms than for large firms due to the higher credit risk for small

firms. Thus according to Fu, T., Ke, M. and Huang, Y. (2002) heavy reliance on debt

financing for capital needs may be negatively related to the profitability of small firms. Debt

financing also includes the non-banking sources of finance and therefore because of the high

cost of credit the management of MSEs may not opt for these alternatives available.

20
According to Zavatta (2008) entrepreneurs are often unwilling to relinquish part of the

company’s ownership to external investors – they prefer to stay small or struggle to survive

with bootstrapping.

2.4 Impact of Non-Banking Sources of Finance on profitability

Credit is an important ingredient for firm growth and its accessibility may determine the

extent to which a firm will grow over time and hence its capacity to generate increased

income and employment opportunities. Without it, various inputs that are used in the firm

such as physical capital, labor and raw materials may not be purchased. Therefore,

accessibility to credit may determine the extent to which a firm will grow over time in terms

of the number of workers or value added. When credit is available, production is likely to be

enhanced. For instance, Feder, Gershon, Lau, Lin and Luo (1990) estimate that an additional

yuan of credit would yield 0.235 yuan of additional gross value of output in china (Akoten,

2007).

According to one major difficulty small firms have is the lack of financial capital. The

constraint on financial capital might have a significant impact on the profitability of small

firms. If financial capital plays an important role in the profitability of small firms, it would

be interesting to answer a further question on the relationship between profitability and

different sources of financing. Access to finance is an essential ingredient for successful

enterprise development (Fu, T., Ke, M. and Huang, Y., 2002). Firms need to invest in

research and development, human capital, tangible assets and others in order to maintain and

enhance their competitiveness (Pinto, 2004).

21
2.5 Chapter Summary

This chapter reviewed the relevant literature in relation to the research questions presented in

this study. It listed and gave a brief description of some of the non-banking sources of

finance and the reasons why are overlooked by many MSEs. Finally, the chapter also links

profitability of a MSE to the source of finance chosen. Chapter three will describe the

methods and procedures used to carry out the study. Specifically, the research design,

population and sampling design, data collection methods, research procedures as well as data

analysis methods will be addressed.

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 Agostino, M., Rocca, M., Rocca, T. and Trivieri, F. (2008). Local Financial Development

and SMEs Capital Structure: An Empirical Investigation. University of Calabria, Italy.

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 Akoten, J., Sawada, Y. and Keijiro, O. (2006). The determinants of credit access and its

implications on Micro and Small Enterprises: the case of garment producers in Kenya.

Journal of African Economies, forthcoming.

 Akoten J. (2007). Breaking the Vicious Cycle of Poor Access to Credit by Micro and

Small Enterprises in Kenya. Institute of Policy Analysis & Research, Discussion Paper

No. 095/2007.

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 Beck, T., Demirgüç-Kunt, A., Maksimovic, V. (2005). Financial and legal constraints to

firm growth: Does size matter?. Journal of Finance, Vol. 60(1), pp. 137-177.

 Binks, M., Ennew, C. and Reed, G. (1991). Small Businesses and their Banks: An

International Perspective. National Westminster Bank. London.

 Cruickshank, D. (2000). Competition in UK Banking. HMSO. London.

 Feder, Gershon, Lau J., Lin Y. and Luo X. (1990). The relationship between credit and

productivity in Chinese Agriculture: A Microeconomic Model of Disequilibrium.

American Journal of Agricultural Economics, Vol. 72, No. 5, pp. 1151-1157.

 Fu, T., Ke, M. and Huang, Y. (2002). Capital growth, financing source and profitability

of small businesses: Evidence from Taiwan small enterprises. Small Business Economics,

Vol. 18, pp. 257-267.

 Gray, K., Cooley, W. and Lutabingwa, J. (1997). Small Scale Manufacturing in Kenya.

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 Guiso, L., Sapienza, P. and Zingales, L., (2004). Does Local Financial Development

Matter?. Quarterly Journal of Economics 119, 929-969.

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 Johnson, S. (2004). Gender Norms in Financial Markets: Evidence from Kenya. World

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 Kasekende, L. and Opondo, H. (2003). Financing Small and Medium Scale Enterprises:

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 Macmillan, H. (1931). Report of the Committee on Finance and Industry. CMD 3897.

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 Maddala, G. (1983). Limited-Dependent and Qualitative Variables in Econometrics.

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