How do Small Firms in Developing Countries Raise Capital? Evidence from a Large-Scale Survey of Kenyan Micro and Small-Scale Enterprises

Abstract

We utilize a unique comprehensive dataset, drawn from the 1999 baseline survey of some 2000 micro and small-scale enterprises (MSEs) in Kenya. We analyze the financing behavior of these enterprises within the framework of a heterodox model of debt-equity and gearing decisions. We also study determinants of the success rate of loan applications. Our results emphasize three major findings. First, MSEs in Kenya obtain debt from a wide variety of sources. Second, debt-equity and gearing decisions by MSEs and their success rates in loan applications can all be understood by relatively simple models which include a mixture of conventional and heterodox variables. Third, and in particular, measures of the tangibility of the owner's assets, and the owner's education and training have a significant positive impact on the probability of borrowing and of the gearing level. These findings have important policy implications for policy makers and entrepreneurs of MSEs in Kenya.

Citation

Green, C.J., Kimuyu, P., Manos, R. and Murinde, V. (2007), "How do Small Firms in Developing Countries Raise Capital? Evidence from a Large-Scale Survey of Kenyan Micro and Small-Scale Enterprises", Hirschey, M., John, K. and Makhija, A.K. (Ed.) Issues in Corporate Governance and Finance (Advances in Financial Economics, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 379-404. https://doi.org/10.1016/S1569-3732(07)12015-6