Institute for Development Studies, University of Nairobi

This is a report of an empirical study of eighty-seven small scale rural firms, clients of Kenya's four Rural Industrial Development Centers. Its purpose is to measure profitability and social performance of firms representing the Intermediate Sector of Kenya's economy. In addition, the study contains some descriptive statistics. Available data suggest that the Intermediate Sector is growing at an accelerating rate and may be expected to continue to do so. The firms are typically small but provide a better than average Kenyan income for their owners. The rate of return on invested capital exceeds that of the Modern Sector by a substantial margin. Both the capital-output and the capital-labor ratios are low. Capital invested in the Intermediate Sector makes a larger contribution to national product and creates more employment than does an equivalent amount of capital formation in the Modern Sector. Furthermore the wages earned by workers compare tolerably well with working-class incomes of the Modern Sector and exceed wages in commercial agriculture. At various points within the paper, characteristics and problems of small-scale rural firms are described and some policy guidance is offered.