EFFECT OF SMALL AND MICRO ENTERPRISE LENDING ON COMMERCIAL BANKS’ FINANCIAL PERFORMANCE IN KENYA

Abstract

The study examined the effect of small and micro enterprise (SME) lending on the financial performance of commercial banks in Kenya. The target population comprised all fully operational commercial banks in Kenya, classified according to the Central Bank of Kenya (CBK) tier system. A census of banks was conducted, covering a ten-year period from 2006 to 2015. Secondary data were collected from audited financial statements, CBK reports, and other relevant banking industry databases using a structured data extraction template. Additionally, to gain contextual insights into bank operations and SME lending practices, one key informant from each bank was surveyed using a structured questionnaire. The study adopted a mixed-method approach, integrating longitudinal secondary data analysis with cross-sectional survey data. Descriptive and inferential statistics were employed, with SPSS used to analyze survey responses through factor analysis and cross-tabulations, while STATA version 14 was used for panel data regression analysis of financial performance indicators. The findings provide insights into how SME lending contributes to banks’ profitability, liquidity, and overall financial performance, informing both policy and banking practice in Kenya.