Financial structure and growth of small and micro enterprises in Nairobi

Abstract

Small and Medium Enterprises have been recognized as key in the government strategy for raising income and employment in Kenya. This is in realization that the sector contributes about 18%to the Gross Domestic Product and employs over 5 million people. The study was carried out using a sample size of 60 SMEs drawn from the Central Business District of Nairobi. The study aimed at establishing the financial structure of SMEs in Nairobi, ascertaining their growth and establishing if there is any relationship between financial structure and growth of firms. The variables used to determine the growth of SMEs were sales, employees, assets and size of business in terms of branches. The study found out that SMEs financed most of their operations using internal sources of funds and when debt was used it was mainly short term debt. The study established that there was a relationship between financial structure and growth of SMEs.There was a high positive correlation between proportion of capital from MFls and growth of SMES internal sources of initial capital and growth in terms of sales and employment. The study established that SMEs have difficulties in accessing external funds and recommends that the Government sets up a fund where SMEs can access funds at low interest rates or the governments act-as a guarantor.