Effects of Demand Side Factors on Access to External Finance by Small and Medium Manufacturing Enterprises in Nairobi, Kenya

Abstract

Purpose - This paper investigates how demand-side factors affect access to external finance by small and medium manufacturing enterprises (SMMEs) in Nairobi, Kenya. The demand-side factors considered in the study are firm characteristics, financial management practices and entrepreneur characteristics.

Methodology - The study employs an exploratory survey design utilizing quantitative methods in data collection and analysis. Data is analyzed using descriptive and inferential statistics. Logistic regression is used to test the relationship between demand-side factors and access to external finance because of the dichotomous nature of the dependent variable.

Findings – The study establishes that some of the demand-side factors significantly influence access to external finance. These factors include variations in entrepreneur’s networks, firm growth and earnings volatility which explain variations in odds of access to external finance by 39.9 percent for networks and 45.8 percent for earnings volatility and firm growth.

Implications – To minimize SMMEs financial constraints, social networking amongst entrepreneurs, firm growth and stabilized earning should be prioritized by management and policy makers. Though ethnic orientation influences the odds of access to external finance, policy efforts should be put in place to ensure efficiency in external financing markets so that entrepreneurs are not disenfranchised on this basis.

Value - The study recommends establishment and support of sustainable social networks that guarantee enterprise growth given that firm growth also influence odds of access to external finance. Further studies should probe the significance of good financial management practices on odds of access to external finance in diverse settings and industries.