Publication: Financial literacy and its impact on loan repayment by small and medium entrepreneurs
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2015-03
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Abstract
In the year 2006, the government unveiled a blue print for developments of middle income status by the year 2030. Small and medium entrepreneurs (SMEs) were identified to be the key drivers to this initiative. Equity Group Foundation (EGF) supported the initiative by availing credit and financial literacy to SMEs. The SMEs form more than 99% of all enterprises in the world and they bring about economic growth in rural and urban setups and balanced developments. The global economy is heavily dependent on the success of SMEs. Equity bank founded a financial literacy program to provide the SMEs with relevant financial skills. SMEs in Kenya suffer from constrains like lack of training and management capacity that lower their resilience to risk and affects their growth. The general objective of the study was to establish the effects of EGF’s literacy training program on loan repayment by SMEs. The specific objectives of the study were to establish the extent to which book keeping, credit management and budgeting skills influence loan repayment. Conducted on SMES in Ngara, Nairobi County, thirty (30) SMEs out of three hundred (300) trained by equity Bank participated in the study. The data collection instrument was a self-administered drop and pick Questionnaire. Findings showed that the four skills mentioned here above greatly determine the ability of SMEs to repay loans. Findings of the study recommend that SMEs who have little or no financial literacy training should enrol in related programs to enhance their capacities. There is need to initiate more such programs to reach many SMEs for proper credit management, improvement of loans repayment, proper interpretation of financial statements as a result of financial analysis skills and proper decision making on opportunities and risk management.
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Financial literacy,, Credit management,, Loan repayment,, Business growth