Influence of Collateral Requirements on Performance of Micro and Small Enterprises Business in Isiolo North Sub-County

Abstract

Entrepreneurs have established restricted access to informal and formal credit as a major constraint to the growth of MSEs in Isiolo County. The County is also characterized by high level of unemployment, particularly among the youths, nomadic life and low educational levels and all these can be attributed to limited access to credit. The high poverty level is indication that the MSE businesses in this County are not doing well. The objective of the study was to determine the influence of collateral requirements on performance of MSE’s business in Isilo North Sub-County. The study adopted a descriptive survey research design. The unit of analysis was 120 micro and small enterprises within Isiolo town. The study found that collateral requirements have a statistically significant and negative relationship with performance of MSE’s business in Isiolo North Sub-County. The study concluded that collateral demanded by the financial institutions was not affordable, that the lending institutions did not allow non-tangible collateral and that, based on the amount of the collateral offered, the financial institutions gave credit. The study recommends the need for financial institutions to review aspects related to collateral requirements. They should particularly make collateral affordable to clients and also introduce a variety of collaterals that MSE owners can manage. For instance, given that most people in Isiolo keep livestock, financial institutions should consider livestock as one of the collateral to secure loan.