RELATIONSHIP BETWEEN SME LOANS AND THE GROWTH OF WOMEN OWNED SMALL MEDIUM ENTERPRISES

Abstract

The study examined the influence of SME loans on the growth of women-owned Small and Medium Enterprises (SMEs) in Kenya, guided by the Modern Portfolio Theory and Asymmetric Information Theory. Using a descriptive research design, data were collected through questionnaires administered to 708 licensed women-owned SMEs in Kwale, Nakuru, and Kajiado counties. Descriptive statistics and frequency distributions were used to summarize respondents’ views on loan types, repayment periods, and business growth indicators. Findings revealed that the majority of women entrepreneurs applied for and preferred business loans, development loans, and working capital loans, while fewer applied for asset financing and acquisition loans. Most respondents preferred repayment periods of 1 to 3 years, with only a small proportion opting for longer durations of up to 9 years. Bank SME lending emerged as the most common source of external finance, and access to these loans enabled SMEs to improve operational efficiency, increase sales revenue, and expand their production capacity. Correlation analysis indicated significant positive relationships between development loans (r = 0.501), asset financing loans (r = 0.597), business loans (r = 0.675), acquisition loans (r = 0.634), and working capital loans (r = 0.577) with SME growth (p < 0.05). Linear regression results further confirmed that these forms of financing collectively explained 58.8% of the variation in the growth of women-owned SMEs, highlighting a strong and positive influence. The study recommends that the government implement policies to improve women entrepreneurs’ access to credit, including faster and more flexible collateral registration processes and an expanded list of acceptable collateral. Financial institutions should continue providing affordable and tailored loan products, while national and county governments should support women-owned SMEs through financial literacy programs and business management training. These measures will enhance the capacity of women entrepreneurs to utilize loans effectively, exploit market opportunities, and contribute more substantially to economic growth, employment creation, and poverty reduction.