TOOLS OR SYSTEMS FOR IMPROVING ACCESSIBILITY TO FINANCIAL PRODUCTS AND SERVICES

Purpose: The purpose of this study was to highlight the need for banks to develop financial products and services for small and medium enterprises. Methodology:The research design was descriptive survey study. The target population was 46 commercial banks .The sampling frame was the list of commercial banks given at the Central bank of Kenya Website. A sample of 17 banks was selected using random sampling. The second stage of sampling involved the selection of the respondents using a stratified sampling approach. The strata were the various departments that interact with SMEs in a bank. The respondents were the head of departments of the respective departments that form the strata. Both qualitative and quantitative data was collected using a questionnaire that consisted of both open ended and close ended questions. Data was analyzed using Statistical Package for Social Sciences (SPSS. Results: One of the study objectives was to establish the level of access to financial products and services offered by the banks to SMEs. Results from the bank manager‟s perspective indicated that the level of access to finance was high, but the bank clients indicated otherwise, that it was low. The other objective of the study was to determine the factors that hinder the SMEs from accessing the financial products offered by banks. Results indicated that several factors influence access of SMEs to finance. These factors include gender, level of education, size of the business, age of the entrepreneur, collateral, and level of income for the entrepreneurs. All the factors had a negative effect on the access of finances from the banks by SMEs and hence indicate SMEs low access to financial products. Another objective of the study was to establish the tools or systems required to improve accessibility to financial products offered. Results indicated that there are tools and systems put in place by banks to improve accessibility to financial products offered to small and medium enterprises. Unique contribution to theory, practice and policy:The study recommended that training be emphasized to SME entrepreneurs on financial matters, all gender to be treated equally, the International Journal of Finance ISSN xxxx-xxxx (Paper) ISSN XXXX-XXXX (Online) Vol.2, Issue No.4, pp 17 37, 2017 www.carijournals.org 18 banks to introduce financial education programs for SMEs to improve their access to credit, banks to further make use of a credit scoring system to assess the credit worthiness of small businesses and to introduce the use of new credit bureau regulations to increase SME finances.

The Kenya Government"s Economic Recovery Strategy (ERS) has identified access to financial services as one means of creating employment, promoting growth and reducing poverty in the country (Government of the Republic of . Overall policy responsibility for supporting SMEs vests with the Ministry of Labour and Human Resource Development and in particular, the Department of Micro and Small Enterprise Development (DMSED). DMSED segments the following business population by employment size: Micro sized business -Up to 5 employees; Small sized business -5 to 50 employees; Medium sized business -50 to 150 employees and large business -More than 150 employees (Atterton, 2008).
The IFC Kenya Country Study (2005) estimated approximately 87% of SMEs have debt financing for up to 50% of the total capital employed, with owners being the highest contributors of both debt and equity capital. The study estimates that 66% of all SMEs have applied for a loan facility with banks. Most of the loan applications are in the form of the overdrafts, term loans and for purchase of motor vehicles. Of the SMEs that applied for the loan facilities, 87% had their loan requests granted with only 13% having their requests declined and the vast majority of the rejection being due to lack of sufficient collateral.
Whereas 66% of the SMEs have attempted to borrow, 82% of the SMEs need additional finance but are reluctant to do so because of the current interest rates and the cost of finance. Costs notwithstanding, a large number (over 80%) of SMEs would like financing of up to KShs 20 million for working capital and investment purposes (Mantle Ltd, 2005). The IFC study also identified significant potential demand for providing working capital and asset based financing to expand operations. Kenyan banks need to become more innovative and aggressive in the formal SME market as opportunities to generate returns from securities and consumer lending.
Forty percent of the Kenyan respondents have (or have had in the past) experience of formal or informal credit or loan services (not including borrowings from family and friends) and 20.6% of the respondents were self-employed in the business sector. Of those that currently had credit (31.7%) the majority used informal arrangements with shops or suppliers (74.2%). The proportion accessing formal personal or business loans from a bank was only 5.7% (FSD Kenya, 2007).
International Journal of Finance ISSN xxxx-xxxx (Paper) ISSN XXXX-XXXX (Online) Vol.2, Issue No.4, pp 17 -37, 2017 www.carijournals.org There are approximately 130 micro-credit organizations recorded by the Central Bureau of Statistics, 4000 Savings and Credit Co-operative Societies (SACCOs) across the country and perhaps, as many as one million Rotating and Accumulating Savings and Credit Associations (ROSCAs and ASCAs). Primarily, these organizations provide goods or capital to their members for starting or enhancing businesses. They face major hurdles in their operations including: Lack of capacity to track and recover loans; a lack of coordination; a lack of commitment from the borrowers; the use of counterfeit documentation as collateral; and the lack of supportive judicial system and effective documentation of property rights (OECD, 2004).Therefore, they are unlikely to become a vehicle for unlocking the intrinsic economic potential of Kenya"s SME sector.

Statement of the Problem
Small businesses are the backbone of most developing and developed economies. They outnumber large companies and they employ the majority of the working population in Kenya. SMEs need finance in order to grow (Kapilla 2006).However; small businesses in developing countries such as Kenya seem to be off the mainstream financial radar screens. The financing gap for the middle segment is often called the "Missing Middle" (Sanders and Wegener, 2006).SME finance is referred to as the "missing middle" because SME financial requirements are too great for most MFIs and SMEs have been viewed as too small, risky, or costly for traditional commercial banks (International Finance Corporation, 2009). Studies such as Kumar and Francisco (2006), Levine (2004), Pandula (2011) have pointed out that SMES face constraints when accessing credit.
In addition, studies have shown that there exist various factors that affect SME access to credit. For instance, Storey (2004) conducted a study on racial and gender discrimination in the micro firm"s credit market and demonstrated evidence from Trinidad and Tobago. The study was built upon human capital theory and specifically looked at education, age, work experience and social background of the owner when accessing credit from banks. Traditional sources of corporate business development are not available to small and medium businesses. Therefore, small and medium enterprises are financed by imperfect markets which include segments of debt and equity markets. These imperfections in the financial markets are as result of (1) financial and regulatory entry barriers to some traditional corporate financial markets and (2) size and economic characteristics of the demandants for business financing (Walker, 1989). Another study by Whincop (2001) attempted to assess how the entrepreneurial financial gap can be bridged and therefore investigated the firm characteristics such as size, age of the business, legal status and financial characteristics such as profit, fixed assets base. This indicates that the proper conceptualization of the factors affecting the use or access of bank credit by SMEs should at least take into consideration three types of characteristics namely; entrepreneur characteristics, firm characteristics and financial characteristics.
Studies have also indicated that the access to credit by women and the performance of women SMEs significantly differs from that of men. McComick (2001) noted that there is a difference in performances of women vs. men in enterprise. He especially noted that women enterprises area smaller, less profitable and begins with less capital than those owned by men. The author concludes that gendered patterns of business operations are supported by five institutions -the incorporation of the wife into the husband's family, the division of labour within the household, the division of asset ownership (the tradition that vests ownership of land in males remains strong, even though women now can purchase and inherit land), the sharing of household expenditures, and the allocation of educational opportunities. Flestcner and Kenney (2011) also assert that context-specific legal rights, social norms, family responsibilities and women"s access to and control over other resources shape their need for capital and their ability to obtain it.
A more comprehensive conceptualization of factors that affect SME access to finance was therefore necessary because earlier studies (Whincop (2001), Pandula (2011), Levine (2004), Kumar and Fransico (2006), Storey (2004) have tended to concentrate on a three factor frame work (entrepreneurial factors, firm factors and financial factors). Previous studies used either the three factor frame work or the gender factor in the investigation of factors that affect the SME financial access. Consequently this study sought to address tools or systems are required to improve accessibility to financial products offered by banks to small and medium enterprises.

Research Questions
1.3.1: What tools or systems are required to improve accessibility to financial products offered by banks to small and medium enterprises?

Level of Access to Financial Products and Services
Providing access to a broad range of financial products and services for SMEs has gained prominence in the past few years as a policy objective for national policymakers, multilateral institutions, and others in the development field (Beck et al, 2007). Financial institutions offer four types of financial products which include deposit products, transaction and other products, financing products and lastly advisory products.

Measuring Access to financial Products and Services.
The credit-seeking decision is a three-stage process. Enterprises first decide on whether or not they need credit. Once that decision is affirmative, a further decision has to be made regarding the appropriate credit source. An additional decision relates to the level of credit to seek out. But even when enterprises feel a need for external credit, they may not borrow if their perceptions on the costs of applying for a loan outweigh the expected receipts. They may also lack enough cash to meet the application costs. Enterprises may also shy away from borrowing due to a poor collateral position (Institute of Policy Analysis and Research, 2000).

Entrepreneurial Factors
Pandula (2011) conducted a survey into the SMEs access to bank finance with a focus on a developing economy (Sri Lanka). The author used a Chi square statistic to assess whether the determinants of access to credit is significantly different among the credit rationed firms and not rationed firms. The chi square results indicated that, education of the entrepreneur and having membership with business association are associated with access to bank finance. Somewhat unexpectedly, all other factors identified in the study did not show any association with access to credit.
Storey (2004) conducted a study on racial and gender discrimination in the micro firm"s credit market and demonstrated evidence from Trinidad and Tobago. The study was built upon human capital theory and specifically looked at education, age, work experience and social background of the owner when accessing credit from banks. Deakins, et al(2008) conducted a study on SMEs access to finance and specifically on whether the debt finance gap still existed. The authors suggested that demand side factors that affected SMEs access to bank finance were due to fear of outright rejection and receiving less than what they expected. Deakins et al (2008) also cites Fraser (2005) who asserted that willingness to approach, feeling discouraged from applying because they expect to be rejected was a demand side factor for credit access.

Firm Factors
Deakins, et al (2008) conducted a study on SMEs access to finance and specifically on whether the debt finance gap still existed. The authors suggested that demand side factors that affected SMEs access to finance from the bank included age of the firm with younger firms experiencing lower access, size of the firm with smaller firms experiencing lower access to credit, access to collateral, and geographical location with rural SMEs experiencing lower access to finance than urban SMES.

Financial Institution Factors
Deakins et al (2008) indicated that supply side factors that affected access to finance included lack of business performance and credit worthiness information about the borrower, policy and practices of banks affected access to finance, banking structure (existence of subsidiaries for referral). Specific bank practices and policies include the 5 Cs of lending. The 5 Cs of lending include collateral, character, capacity, capital, conditions. The 5 Cs are most commonly used models by banks in evaluating lending propositions. The 5Cs model looks at a range of aspects associated with lending covering both the finance being sought as well as the characteristics of the borrower. Character stands for the characteristics of the borrower such as honesty and trustworthiness, Capacity considers ability to pay in terms of acquired skills and experience, Capital measures the net value of the entrepreneurs in terms of assets and liabilities, Collateral is the security required in lending which acts as a cushion against borrower"s inability to repay the loan / credit. Conditions are those set by the bank such as turnovers levels and profitability, Purpose of loans which refers to the need for the requested amount, period of business operations, Amount which refers to adequacy of the credit, Repayment which refers to source and timing to repay back the credit (Binks, &Ennew, 1996).

Gender Factors
Studies have also indicated that the access to credit by women and the performance of women SMEs significantly differs from that of men. This has been observed in McComick (2001) who noted that there is a difference in performances of women vs. men in enterprise. Women enterprises were noted to be smaller, less profitable and begin with less capital than those owned by men, this because women do not have access to funds. The author concludes that gendered patterns of business operations are supported by five institutions -the incorporation of the wife into the husband's family, the division of labour within the household, the division of asset ownership (the tradition that vests ownership of land in males remains strong, even though women now can purchase and inherit land), the sharing of household expenditures, and the allocation of educational opportunities.

Credit Bureaus and Credit Scoring
Lenders can improve their knowledge about new customers by exchanging information with other lenders through information brokers, known as "credit bureaus" (Pagano and Jappelli, 1993). Credit bureaus are essential elements of the financial infrastructure that facilitate access to finance. Today, less than 25 percent of the people living in developing countries have access to formal financial services, compared to up to 90 percent in developed markets (International Finance Corporation, 2006).

Financial Education
Financial education teaches the knowledge, skills, attitudes that people can use to adopt good management practices for earning, spending, savings, borrowing and investing. It is often confused by business education; hence the need to define financial education by what it is not. Financial education is not a business development service (BDS); it does not teach to write a business plan, nor how to run a business nor the related skills of costing, pricing or record keeping. Rather, financial education develops a broad range of basic financial skills and is therefore relevant to anyone who makes decisions about money (Nelson and Wambugu, 2008).

Collateral Registries
A challenge in the operating environment is defined not by the presence of a specific obstacle, but by the absence of an important catalyst to SME banking, the credit information infrastructure. Where reliable financial statements are lacking, the information on prospective SME borrowers provided by credit bureaus and collateral registries can be instrumental in banks" abilities to approve loans. SMEs find it more difficult to obtain loans in countries where this information is lacking (International Finance Corporation,2009).

RESEARCH METHODOLOGY
The research design was descriptive survey study. The target population was 46 commercial banks .The sampling frame was the list of commercial banks given at the Central bank of Kenya Website. A sample of 17 banks was selected using random sampling. The second stage of sampling involved the selection of the respondents using a stratified sampling approach. The strata were the various departments that interact with SMEs in a bank. The respondents were the head of departments of the respective departments that form the strata. Both qualitative and quantitative data was collected using a questionnaire that consisted of both open ended and close ended questions. Data was analyzed using Statistical Package for Social Sciences (SPSS.

Products Availed
The respondents were asked if the organization provides deposit products such as current accounts and savings accounts to SMES. A majority (46%) strongly agreed while another 44% agreed bringing to a total of (90%) of those who agreed. Ten percent were neutral and none agreed and strongly agreed. The results are presented in table 1.

Trade finance Products
The respondents were asked whether the organization provided trade finance products such as letter of credits to SMEs. A majority (84%) agreed while another 16% strongly agreed bringing to a total of 100% of those who agreed. The results are presented in table 2

Factors hindering Small Medium Enterprises Access to financial products and Services.
The study sought to establish the factors hindering small medium enterprises access to financial products and services. The findings are presented as follows.

Lack of Credit Worthiness Information
The respondents were asked whether the lack of credit worthiness information about SMES is a factor that limits most types of lending. A majority (50%) agreed while another 41% strongly agreed bringing to a total of 91% of those who agreed. However, only 9% respondents who were neutral. The results are presented in table

Lack of Business Information
The respondents were asked whether the lack of credit worthiness information about SMES is a factor that limits most types of lending. A majority (50%) agreed while another 41% strongly agreed bringing to a total of 91% of those who agreed. However, only 9% respondents who were neutral. The results are presented in table 4.

Credit Bureau Regulations
When the respondents were asked if the organization views the new credit bureau regulations as a positive step in increasing SME finance, a majority 63% agreed while 37% strongly agreed bringing to a total of 100% of those who agreed. Table 5 indicates these results.

Credit Scoring System
When the respondents were asked if the use of a credit scoring system is a positive step to assess the credit worthiness of small businesses, a majority 69% agreed while 24% strongly agreed bringing to a total of 93% of those who agreed. However, 6% were neutral and only 1% respondents disagreed with the statement. Table 6 indicates these results.

5.1: Summary of Findings
The general objective of this study was to investigate the factors affecting access to finance and establish tools or systems required to improve accessibility to financial products offered by banks to small and medium enterprises in Kenya. The specific objectives of this study were to establish the level of access to financial products and services, to determine factors hindering SMEs access to financial products offered by banks, and to establish tools or systems required to improve accessibility to financial products offered by banks to small and medium enterprises.
The research used a total population of sixty eight bank managers and sixty eight bank clients as the sample size for the study. For purposes of collecting primary data, the use of a questionnaire developed by the researcher was used and their results analyzed using various statistical methods such as graphs, charts and with the aid of Microsoft Excel.
Study findings indicated that most of the bank managers (69%) of the respondents were male and (31%) were female. A majority (60%) of respondents were aged between 31-50 years, followed by (21%) respondents who aged between 18 to 30 years. Majority (41%) of the respondents were university graduates. The finding implies that the respondents of the study were mature and probably ready to retire in the next decade. A majority 62% of the respondents indicated they were trained on financial matters.
Results indicated that banks offered different types of financial products such as deposit products, trade finance products, and advisory services to their clients. This is evidenced by the majority of respondents who indicated they strongly agree and agreed. Results also indicated that several factors hindered SMEs from accessing financial products such as lack of collateral, lack of borrower"s honesty and trustworthiness. This is evidenced by the majority of respondents who indicated that they strongly agreed and agreed it was not easy for SMEs to access credit from banks. In addition, the bank implemented tools or systems that would improve SMEs access to finance since the majority of the respondents indicated that the systems would give entrepreneurs financial education program to improve their access.
Study findings further indicated that most of the bank clients (66%) of the respondents were male and (34%) were female. A majority (44%) of respondents were aged between 31-50 years, followed by (35%) respondents who aged between 18 to 30 years. A majority (59%) of the respondents was single and 41% were married. Majority (35%) of the respondents were university graduates and a further same percentage indicated they had secondary certificates. The finding implies that the respondents of the study were mature and probably ready to retire in the next decade. A majority 71% of the respondents indicated they were not trained on financial matters. Forty four percent of the respondents indicated that their businesses were in existence for less than one year. Majority 50% of the respondents indicated that they had no employees.
Results indicated that gender was one of the factors that influence access to credit. This is evidenced by the majority of respondents who indicated they strongly disagreed and disagreed with the statements that stated they had access and control over the household assets and resources such as land, they had adequate access to information about financial and investment opportunities.
Results also indicated that SMEs had a low access to financial products as it was evidenced by the majority of respondents who indicated that they disagreed they were always willing to approach a bank for financing, their application rarely got rejected, they were always awarded loan which was adequate for their businesses.

Recommendations for Improvement.
Following study results, it is recommended that training be emphasized to SMEs entrepreneurs on financial matters as it influences access to finance. Therefore the banks are urged to introduce financial advisory services such as training on how to produce reliable financial statements and development of good business plans, offer advice to SMEs on how to select appropriate financing products.

Tools or Systems for Improving Accessibility to Financial Products and Services
Following study results, it is recommended that the banks to introduce financial education programs for SMEs to improve their access to credit, to make use of a credit scoring system to assess the credit worthiness of small businesses and introduce use of new credit bureau regulations to increase SME finances.

Recommendations for Further Studies
The study recommends further studies on the access of informal credit by SMEs. Such as study should focus on the factors that influence the access of small firms from microfinance institutions, merry go rounds and SACCOs. Future studies should also focus on the financial management practices of small firms. This is because the proper working capital management may influence the growth, profitability and the consequent ability to access finance from all sources.