An Evaluation of Credit Appraisal Techniques Adopted by Commercial Banks in Kenya in Lending to Small and Medium-Sized Enterprises

Abstract

The main purpose of this study was to evaluate the credit appraisal techniques used by commercial banks in Kenya in lending to small and medium sized enterprises. The study sought to achieve two specific objectives: to determine the credit appraisal techniques used by commercial banks in Kenya in lending to small and medium sized enterprises and establish challenges facing banks in using the applicable credit appraisal techniques. The study adopted a descriptive research design and the target population of the study included 41 commercial banks that have branches within Nairobi’s Central Business District. Primary data was collected by means of semi-structured questionnaires. The data was analyzed using multivariate regression analysis as well as percentages and frequencies. The findings reveal that the following attributes were considered to be of great importance when making lending decision: strength of income statements, strength of the balance sheet, long histories, quality of accounts receivable and inventory, history of the principal owner and transparency of firms through provision of certified financial statements.