Financing of small and medium enterprises (smes) in Kenya: A study of selected smes in kakamega municipality

Business finance for Small and Medium Enterprise in Kenya is what determines their mortality rate. The objective of the study was to find out major sources of financing of SMEs in Kenya: the extent to which, formal financing were accessible to the SME. 60 SME Owner/Manager were interviewed in Kakamega Municipality. The study utilised descriptive research design which included surveys and fact- finding enquiries of different kinds and data collection using questionnaire. The sampling frame of 1311 was stratified into 6 criteria and systematic random samplings of 60 samples were selected from all the strata using the same sampling proportion (0.045). The analysis of data was done using both quantitative and qualitative methods to report the findings. Functions used for analysis in this study were frequencies, charts and cross tabulations. Qualitative analysis used a central tendency measure which was able to calculate mean scores on a likert scale. Qualitative phase helped to fill in the gaps and provided additional information on measures to enhance SMEs financing. It was found that less than half of SMEs in Kakamega Municipality consider formal financing as a source of capital for their operations, more than 90 percent of SMEs who sought for formal financing succeeded. These results showed that formal financing were significant to keep the business operational of SMEs in Kakamega Municipality. Overlap between various sources was observed indicating multiple sources of capital are adopted by a variety of the SMEs which includes loan from micro-finance institutions and private sources (personal savings, friends and relatives). Major challenges that faced SMEs in Kakamega Municipality were identified as stiff competition, high running costs, low sales, and low profit margins. The SME Owners/Managers also indicated that cost of financing was high and was the major impediment to them seeking financing of their enterprises.