Adapting to the financial landscape: Evidence from small firms in Nairobi

Small enterprises face a financial landscape that limits their access to bank loans and trade credit. They adapt by relying on a range of other mechanisms to relieve the financing constraint. Employing an institutional framework, the paper explores the use of credit from suppliers, customers and other sources. A unique finding is that very small firms use purchase orders as a signaling device to obtain irregular access to trade credit. The use of pre-payments, installments and overdrafts is also investigated. The results indicate that small firms may be less credit constrained than is suggested by a narrow definition of credit. Evidence is drawn from a survey of 115 micro and small manufacturing enterprises in Nairobi. (C) 2003 Elsevier Ltd. All rights reserved.