Effect of Profitability on Financing Small and Medium Enterprises (SMEs) by Financial Institutions in Kenya: A Case Study of Equity Bank, Central Kenya

Abstract

Businesses have in the recent past been awakened by the ever-growing competition in market share and in extreme exit from the market. The small and medium enterprises (SMES) have not been spared and have therefore sought for financing from lenders such as financial institutions with a view to be able to compete effectively. Financing is a major ingredient to success of any business. This is so because objectives of the business cannot be met if there are no resources in terms of infrastructure and stock besides other overheads such as human resource, marketing etc. This paper seeks to determine the effect of profitability on financial institutions management when considering award of loans to theSmes.The researcher believes that the findings will be of use to the government for policy making, legislation, the findings will also assist the investors in evaluating themselves for creditworthiness. Private sector will also get to know where and when they could supplement the government in boosting entrepreneurship from the findings. Equity Bank: Central Kenya was the case study. The findings were that profitability is a major consideration when evaluating SMEs creditworthiness. Business should exercise utmost discipline and focus towards profit making to enhance eligibility for financing by financial institutions.