Effect of Collateral Requirement on Financial Performance of Agribusiness Small and Micro Enterprises in Nyeri Central Sub County Kenya

Abstract

Access to finance is critical to growth as well as development of small and micro enterprises (SMEs) .Most of the SMEs rely on commercial banks for financing of their enterprises. At times collateral requirement could deter some entrepreneurs from acquiring finances which could interrupt business growth as well as development. This study sought to investigate the effect of collateral requirement on financial performance of agribusiness small and micro enterprises in Nyeri Central Sub County. The study was guided by theory of financial intermediation theory. The target population of this study was 950 licensed Agribusiness SMEs. A sample size of 274 licensed SMEs operating in the Nyeri Central Sub County was estimated by the use of the Krejcie and Morgan's criterion. A Cronbach alpha coefficient of 0.7 was used to evaluate the reliability of the semi-structured questionnaire. A response rate of 86.5% was achieved. Inferential statistics was carried out to ascertain the relationship between collateral requirement and the financial performance of agribusiness SMEs in Nyeri Central Sub County. Regression assumptions of independence, linearity and normality were done. Results were interpreted using 5% level of significance. Bivariate regression analysis results indicated that collateral requirement had a negative and statistically insignificant effect on financial performance of Agribusiness SMEs. The study concluded that the collateral requirement by commercial banks affects the SMEs financial performance. The study recommends that Agribusiness SMEs should invest in capital assets which will assist them as collateral in time of accessing credit from commercial banks in order to enhance an sustain their financial performance.