Digital Credit Borrowing On The Financial Risk Exposure of Micro And Small Enterprises In Nairobi City County, Kenya

International Journal of Economics and Management Studies

© 2020 by SSRG - IJEMS Journal

Volume 7 Issue 4

Year of Publication : 2020

Authors : Ngulale Majala Elizabeth, Dr.Jagongo A.O

10.14445/23939125/IJEMS-V7I4P118

How to Cite?

Ngulale Majala Elizabeth, Dr.Jagongo A.O, "Digital Credit Borrowing On The Financial Risk Exposure of Micro And Small Enterprises In Nairobi City County, Kenya," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 4, pp. 136-144, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I4P118

Abstract:

Digital credit has currently developed as an alternative instrument for providing short-term loans to uninformed borrowers. As digital credit products have thriven, so too have reports of greedy behaviors by some lenders. In free or loosely regulated markets, the use of digital credit may pose serious menaces to consumers, including manipulation, accidental leakages, over-indebtedness, identity theft, and fraud.  This study sought to investigate the financial risk exposure from the use of the Digital credit borrowing on the micro and small enterprises in Nairobi City County in Kenya. The objectives of this study were to find out through research the design & delivery of digital credit loans, cost of borrowing the loans, Literacy levels of the borrowers, Income levels of the borrowers, and credit risk management. The information that provided by this research was benefited digital credit lenders, the borrowers, academicians, and policymakers. The study adopted the theory of Micro-Loan borrowing Rates, Credit risk Theory, Loanable Funds Theory, and The Enterprise Risk Management Theory & Practice. A sample of 385 respondents drawn from a population of 21,100-registered Micro and Small enterprises registered in Nairobi City County was used to arrive at a conclusion. Primary data was collected from the sample population using open and closed-ended questionnaires. The questionnaires were administered through self-allocated surveys and scholarly managed surveys. The reliability of the questionnaires was determined by Cronbach’s Alpha. The variables were considered reliable because their reliability values exceeded the prescribed threshold of 0.7. The study adopted both inferential and descriptive research designs. Data was coded and sorted by the use of SPSS. Descriptive statistics such as percentages, frequencies, mean and standard deviation were used. Afterward, the research findings were presented using pie charts, frequency tables, and bar graphs. A multiple linear regression was used to analyze the relationship and draw inferences from research data. The study found out that Digital Credit borrowing was predominant because the respondents appreciated the convenience and disbursement speed. Despite the high-interest rates and transactional costs levied, the borrowers who seemed not to be aware, most of them undertook multiple borrowing. Due to the nature of the digital loans, most defaults and late repayments resulted in negative listing at CRB’s. The study indicated that the Design and Delivery, Cost of borrowing the digital loans, Financially Literacy Levels, Credit Risk Management, were statistically significant in the financial risk exposure. The moderating variable was found to be insignificant. The study recommends transparency and consumer protection, Digital sensitizations and campaigns, and regulation of the digital lenders.

Keywords:

Digital Credit Borrowing, Financial Risk Exposure, Micro and Small Enterprises, Nairobi City County, Kenya.

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