CITATION: Ollows L., (July, 2016), Is relationship lending practical? the use of relationship lending measures in small and medium enterprise (SME) lending: a multiple case study of commercial banks in Kenya: International Journal of Economics & Finance volume II (4), 265-275. ISSN 2105 6008.   Abstract

The subject of small and medium enterprise (SME) lending has attracted a lot of interest from both academics and policy makers as access to finance for these enterprises is necessary to ensure their continued contribution to the economic development of most economies. Due to the informational opaque nature of SMEs, relationship lending is a method that is considered appropriate for use when lending to these enterprises. As relationship lending is difficult to measure, it has been proxied by certain measures the most common being; duration, scope and,concentration of borrowing. Previous studies, employing a quantitative approach, have been carried out to determine the relationship between these measures and SME lending terms for the borrower and have resulted in contrasting results. The use of an in-depth qualitative study is therefore considered, to explore the supply side (commercial bank) perspective on how these measures affect the SME lending decision. The objective of this study is to determine whether commercial banks in Kenya employ relationship lending. Data is collected through semi structured interviews and analysed using content analysis. The results reveal that commercial banks do use the measures suggested in literature as indicators of the practice of relationship lending but to a large extent with other considerations. The study concludes that relationship lending is practised by the selected commercial banks in Kenya.

  Keywords : Relationship lending – duration – scope - concentration of borrowing.

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