Benefits of Small and Medium Enterprise Lending for Commercial Banks in Kenya

Abstract

A review of research on bank financing reveals that there are mutual benefits to be gained by both borrowers and lenders when they engage in small and medium enterprise (SME) lending. However, most studies emphasize the demand side, or the borrower, benefits and largely ignore lender benefits. Therefore, with the increased commercial banks’ interest in the SME sector, it is important to determine the supply side, or the lender, benefits if lenders are to continue serving these firms. The main objective of this study is to determine the benefits that commercial banks gain when they finance small and medium enterprises. Data is collected through semi structured interviews, conducted with SME bank managers who work closely with SMEs, and analyzed using content analysis. The study yields fourteen benefits that commercial banks in Kenya enjoy from engaging in SME lending.