Linkages, Access to Finance and the Performance of Small-Scale Enterprises in Kenya

Micro- and small-scale enterprises (MSEs) have become important players in the Kenyan economy, but at the same time they continue to face constraints that limit their development. Lack of access to financial services is one of the main constraints, and a number of factors have been identified to explain this problem. These include the segmented and incomplete nature of financial markets, which increases transaction costs associated with financial services. On the supply side, most formal financial institutions consider MSEs uncreditworthy, thus denying them credit. Lack of access to financial resources has been seen as one of the reasons for the slow growth of firms. Literature from the new institutional economics, however, shows that institutional arrangements, like linkages and networks between firms, provide an important avenue through which firms can overcome some of these constraints.