Credit guarantee schemes and MSME financing in Kenya: A firm-level analysis

Anthony Muli, David Ndwiga, Raphael Agung and Samantha Njoroge

No 97, KBA Centre for Research on Financial Markets and Policy Working Paper Series from Kenya Bankers Association (KBA)

Abstract: The study seeks to examine the effects of credit guarantee schemes on Micro, Small and Medium-sized Enterprises (MSME) lending. Specifically, the paper examined the performance of a specified credit guarantee scheme, effect of the credit guarantee scheme on MSME loan default probability and how loan repayment performs across different sectors. The study utilised bank level data for 2,398 MSMEs under the specified credit guarantee scheme. The study found that the credit guarantee scheme improves MSMEs access to formal credit. Furthermore, low default rate was reported based on firm count. Regarding credit guarantee coverage ratio - default probability nexus, this study established existence of moral hazard effect which is statistically significant. However, across different sectors, short run models find credit guarantee moral hazard sectoral bias, largely elevated in agriculture, building and construction, trade and manufacturing sectors. Additionally, default risk was found to reduce with firm age.

Date: 2026
New Economics Papers: this item is included in nep-ent, nep-mfd and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kbawps:340176

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