Cost Leadership Strategies and Credit Access among Micro, Small, and Medium Enterprises in Nairobi City County, Kenya

Abstract

Access to credit remains a critical challenge for micro, small, and medium enterprises (MSMEs) in Kenya. Despite their recognized role in driving economic growth, job creation, and social transformation, many MSMEs face difficulties meeting lender requirements due to limited adoption of strategic cost leadership practices. This study sought to examine the effect of cost leadership strategies on credit access among MSMEs within Nairobi City County, with a specific focus on how government regulation moderates this relationship. Specifically, it assessed the effect of operational efficiency, cost minimization, and resource utilization practices in relation to credit access. The study was guided by three theoretical perspectives: Porter’s Generic Strategies Model, Resource-Based View (RBV) Theory, and Transaction Cost Economics (TCE) Theory. These frameworks provide a robust foundation for understanding how cost leadership influences MSMEs’ ability to access and utilize credit effectively. The research adopted a descriptive and correlational research design and targeted a population of 268,100 licensed MSMEs within Nairobi City County, from which a random sample of 440 MSME owners was selected as respondents. Data was collected through structured questionnaires focusing on the study’s four dimensions of cost leadership and their effect on credit access. The data was then coded, cleaned, and analyzed using descriptive statistics, including frequencies, percentages, means, and standard deviation. Inferential statistics were also utilized, including correlation and regression analysis. To ensure reliability and accuracy of the regression model, several diagnostic tests were conducted, including tests for normality using histograms, multicollinearity tests to assess correlations among independent variables, linearity tests to confirm the nature of relationships, and the Durbin-Watson statistic to test for autocorrelation. The quantitative findings are presented using tables and figures, while the qualitative findings are presented in continuous prose. The correlation results indicated that operational efficiency, cost minimization, and resource utilization each had a positive and significant association with credit access, whereas government regulation had a negative and significant association with credit access. Regression results further revealed that operational efficiency, cost minimization, and resource utilization had a positive and significant effect on credit access, while government regulation exhibited a negative moderating effect on the relationship between cost leadership and credit access. The study concluded that operational efficiency, cost minimization, and resource utilization significantly enhance MSMEs’ access to credit, while stringent government regulations negatively moderate this relationship by increasing compliance costs and operational burdens. It recommends that MSME managers strengthen cost leadership practices through efficiency, prudent cost management, and resource optimization to improve creditworthiness. Policymakers should streamline regulatory frameworks, reduce compliance barriers, and introduce targeted incentives to support MSME financing. The study suggests further research on sector-specific effects of cost leadership on credit access, the moderating role of entrepreneurial education, comparative analyses across counties, and the impact of digitalization on MSME financing.