Microfinance can be seen as a supply of loans, savings and other financial services to the SMEs. Financial access can help firms start up and expand their businesses through inter alia development of new products and production processes, and investment in human capital. A variety of financial services (credit, savings, insurance, and payment facilities) are crucial for growth in the SME life cycle. This study therefore sought to evaluate factors affecting access of credit by small and medium enterprises in microfinance institutions. The specific research objectives included determining: the extent to which SMEs characteristics affect credit accessibility facilities offered by MFIs, the extent to which collateral of SMEs affects credit accessibility from MFIs and to evaluate whether credit policies of MFIs affect credit accessibility by SME. The study adopted cross-sectional survey design to achieve the objectives. The study employed a sample of 244 from a population of 620 SMEs located within Nakuru municipality. Primary data was collected from the study respondents using structured questionnaires administered by the researcher. Data was analyzed with the help of the Statistical Package for Social Sciences (SPSS) computer software. Both descriptive statistics (frequencies, means and percentages) as well inferential statistics (correlation and regression analysis) were used analyze to test the relationship between independent variables (factors affecting access to credit) and dependent variable (Access to credit). From the results of data analysis it was concluded that although the SMEs characteristics had the capability to positively affect access to credit by SMEs, they were yet to be fully utilized to the advantage of the SMEs in the study area. The MFIs requirements and credit policies negatively and significantly influenced access to credit offered by the MFIs in the study area. The study recommends that: the MFIs should seek to transform some of the critical characteristics of SMEs such as size, industry sector and location to their advantage in order to enable SMEs increase access to credit; endeavour to understand and meet the SMEs requirements for credit such as helping them in preparing financial statements and credit scoring and MFIS should address the various credit policies such as lack of training, collateral, past lending history and cost of lending in order to increase SMES access to credit through capacity building.

Background of the Study 
Microfinance is not a new concept. It dates back in the 19th century when money lenders were informally performing the role of now formal financial institutions. The informal financial institutions constitute; village banks, cooperative credit unions, state owned banks, and social venture capital funds to help the poor. These institutions are those that provide savings and credit services for small and medium size enterprises. They mobilise rural savings and have simple and straight forward procedures that originates from local cultures and are easily understood by the population (Germidis et al., 1991). These funds are to finance the informal sector SMEs in developing countries and it known that these SMEs are more likely to fail (Maloney, 2003). 

The creation of SMEs generates employment but these enterprises are short lived and consequently are bound to die after a short while causing those who gained job positions to lose them and even go poorer than how they were. It is not until recent that microfinance had gained recognition thanks to the noble prize winner Yunus Muhammad of the Grameen Bank. It should be noted that microfinance is not a panacea but it is a main tool that foster development in developing countries. It is known worldwide that the poor cannot borrow from the banks. Banks do not lend to them because they do not have what is required to be granted a loan or to be provided with the bank services. The lack of financial power is a contributing factor to most of the societal problems. These problems emanate from poverty and it is known that with poverty one is bound to suffer so many consequences ranging from lack of good health care system, education, nutrition, Microfinance has proved this bank concept to be wrong. They target the poor who are considered risky but the repayment rate turns to be positive as compared with the regular commercial banks (Zeller and Sharma, 1998). Researchers have viewed microfinance in different dimensions. Microfinance gives people new opportunities by helping them to get and secure finances so as to equalise the chances and make them responsible for their own future. It broadens the horizons and thus plays both economic and social roles by improving the living conditions of the people (Microfinance Radio Netherlands, 2010). 

According to Ledger wood (2002) the term microfinance refers to the provision of financial services to low income client including self employed. Integrated Microfinance Bank (IMFB 2007) was of the opinion that microfinance is the supply of loans, savings and other basic financial services to the poor. Everyone needs a diverse range of financial instruments to run their business, build asset, stabilize consumption and shield the SMEslves against risks. Financial services needed by the poor include working capital loans, consumer credit, savings pension insurance and money transfer services. Olaitan (2001) opined that microfinance is the entire flexible structures and processes by which financial services are delivered to micro entrepreneurs as well as the poor and low income population on a sustainable basis. It recognized poor and micro entrepreneur who are excluded or denied accesses to financial services on account of their inability to provide tangible assets as collateral for credits facilities. 

Microfinance can be seen as a supply of loans, savings and other financial services to the poor. It is the practice of delivering those services in a sustainable manner so that poor households will have access to financial services so that they can build sustainable micro enterprise. While microenterprise is a business that is independently owned and operated by its owners and does not meet certain standards of size which in most cases operated as informal business. According to Johnson and Rogaly, (1999) very small deposits and loans are referred together as microfinance. Also Rutherford (2000) stated that access to microfinance is very important because it enables the poor to create, own and accumulate asset and smooth consumption. Microfinance involves the provision of credit, savings, repositories, and financial services to low income earners or poor households to create or expand their economy and to improve their standard of living, (Olaitan 2001).The similarity among all the definitions above is that microfinance is about the provision of financial services to the poor, low-income earners and people operating small business in order for them to improve their standard of living. 

Financial access can help firms start up and expand their businesses through inter alia development of new products and production processes, and investment in human capital. A variety of financial services (credit, savings, insurance, and payment facilities) are crucial for growth in the SME life cycle; however, the focus of this report is on expanding access to finance. Firms often depend on informal sources of funding in the very early stages of their development. External sources, however, become more important as firms start expanding, and their availability can determine decisively the growth trajectory of SMEs (Klapper, 2006). Internal financing sources typically include an entrepreneur’s own savings, retained earnings, or funding through the sale of assets. The external sources of finance can be informal (family and friends or supplier finance) and formal (debt or equity). SMEs 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. Country context plays a major role in determining the nature of these characteristics, especially, the size of investment in capital accumulation and the number of employees. For developing countries, small-scale enterprises would generally mean enterprises with less than 50 workers and medium size enterprises would usually mean those that have 50-99 workers. 

In more developed economies, the dynamic arguments for the existence of SMEs have been stressed in terms of their being more innovative and constituting a seedbed for the development of new firms. In Kenya, SMEs are increasingly taking the role of the primary vehicles for the creation of employment and income generation through self-employment, and therefore, have been tools for poverty alleviation. SMEs also provide the economy with a continuous supply of ideas, skills and innovation necessary to promote competition and the efficient allocation of scarce resources. 

While the income accruing to the entrepreneurs and the expansion of their businesses is affected, a similar effect is exerted on the economy as a whole. The growth and development of the country is slowed. Research by Ariyo (2000), argued that enterprise, especially the small and medium scale enterprises significantly contributes to the growth of an economy. In fact, there are evidence of countries that has achieved economic transformation through the encouragement and promotion of entrepreneurship activities; among such is China. According to Bharti and Shylendra (2011) access to capital is critical in the promotion of entrepreneurship development particularly microenterprises. Similarly, Simtowe and Phiri (2007) and Muktar (2009) stated credit as a precondition to the growth of enterprises (entrepreneurship).

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