Banking Services and The Status of Small and Medium Scale Enterprises In Ruiru Town;

ABSTRACT Formal commercial banks have been recommended as the major source of external financing for the Small and Medium scale Enterprises (SME5) sector. This Is because the informal financial institutions are known to be dogged with both inadequate regulatory framework and problems of financial proficiency therefore making them unreliable in propagating sustainable development &this sector. The study examined the level of interaction between banks and SME5 and the specific gains realized by 5MB sector as a result of this interaction. The study also assessed the bottlenecks experienced by both banks and SMEs in the process of relating with one another. Finally, the study established the different strategies adopted by banks In deepening their service delivery to the SME5 sector. This was accomplished by gathering the relevant infonaation through questionnaires from thç proprietors of SME5 operating in Ruiru town and staff of the banks with outlets in the atea. The study found that though banks offered to SMEs a wide variety of services, SME5 have not been able to fully utilize these facilities because of the procedural and cost burdens Involved. Banks aiso perceived lending to SMEs as a risky venture and therefore &Iopt a more cautious approach or charged a risk premIum which further kept the SME5 at bay. Nonetheless, it was evident from the study that despite the existing lImItations, banks have played a pivotal role in promoting the welfare of SME5. Iii the light of the findings of the study, the researcher made various recommendations meant to address the critical financing problem in the SMEs sector which induded broad-based government policy interventions, enhanced capacity buildIng through training of proprietors and managers as weli as rationalized application of bank’s lending policies.