Interest Rate Dynamics, Perceived Financial Risk, and SME Investment Choices in Kenya: Evidence from the MSMEs Register
DOI:
https://doi.org/10.59261/jedvb.v4i1.107Keywords:
interest rates, financial risk, sme investment, kenya, MSMEsAbstract
Small and Medium Enterprises (SMEs) contribute substantially to employment, income generation, innovation and local economic activity, yet productive investment can be constrained when finance is costly, difficult to obtain or uncertain. In Kenya, evidence linking financing conditions, perceived financial risk and enterprise investment remains fragmented, particularly when current firm-level evidence is distinguished from macroeconomic interest-rate conditions. This article addresses that gap using genuine secondary data from the World Bank Enterprise Survey (WBES) 2025 for Kenya. The study is quantitative and explanatory, using a cross-sectional secondary-data design. The official Kenya 2025 file contains 1,024 establishments and 336 variables. Financing conditions are examined through documented indicators including access to finance as a business obstacle, internal and bank financing of working capital, bank financing of fixed assets, and loan or line-of-credit access. Investment is represented by reported fixed-asset purchases and expenditure on equipment and land or buildings. The study finds that the WBES provides a suitable empirical basis for distinguishing financing constraints, financing structure and observable investment activity, while interest-rate stability must be treated as a macro-financial context rather than an invented firm-level scale. The contribution is methodological as well as substantive, establishing a reproducible foundation for future inferential analysis of SME financing and investment in Kenya.
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