SMEs in 2,500 Demand Lower Interest Rates in Nairobi

A University of Nairobi study has found that interest rates significantly influence the demand for credit among small and medium-sized enterprises (SMEs) in Nairobi County. The research, conducted by Lydiah Nyaboe as part of her Master of Business Administration thesis in 2013, examined how fluctuations in lending rates affect SMEs’ borrowing behavior. Using data collected from 48 SMEs across Nairobi, the study revealed a strong positive relationship (R = 0.932) between interest rates, annual profits, and owners’ equity — with 86.9 percent of the variation in credit demand explained by these factors.
The findings indicate that as interest rates change, SME owners adjust their borrowing decisions depending on their profitability and financial strength. While higher rates typically discourage borrowing, the research suggests that many SMEs in Nairobi continue to seek loans despite high costs, driven by the need for working capital and business growth. The study employed both descriptive and inferential statistics using SPSS software to analyze the data, concluding that interest rates remain a critical determinant in the accessibility and demand for credit among small businesses.
According to Nyaboe, the results underscore the importance of balanced credit policies that encourage borrowing while maintaining sustainable lending rates. The research recommends that financial institutions design flexible loan products with affordable rates to promote entrepreneurship and SME growth. Policymakers were also urged to maintain macroeconomic stability and improve access to credit through targeted government programs. The study’s insights remain relevant today, as SMEs across Kenya continue to grapple with the dual challenge of high interest rates and limited access to affordable financing — key issues shaping the country’s broader economic recovery and development agenda.