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How do small firms in developing countries raise capital? Evidence from a large-scale survey of Kenyan micro and small scale enterprises

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posted on 2005-08-12, 14:45 authored by Christopher Green, Peter Kimuyu, Ronny Manos, Victor Murinde
This paper utilizes a unique comprehensive dataset, drawn from the 1999 baseline survey of some 2000 micro and small-scale enterprises (MSEs) in Kenya. We analyse the financing behaviour 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.



  • Business and Economics


  • Economics


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Economics Research Paper, no. 02-06


  • en

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