Effect of Access to Private Equity on the Growth of Small and Medium Entreprises in Kenya

Abstract

The main purpose of the study was to establish the effect of access to private equity on the growth of small and medium enterprises in Kenya. The study was guided by the following specific objectives: to establish the current status of private equity investment in the SME’s sector and to determine the effect of private equity on the financial performance of SME’s institutions. The study adopted a descriptive survey research design. The population in this study was all top 100 SMEs registered in Nairobi, acquired from the Nairobi County government records. 30% of the accessible population is enough for the sample size. Therefore, for the sake of this study 30 SMEs was studied. Semi-structured questionnaires were used to collect data at the premises of the participant SME’s using an administered questionnaire. The completed questionnaires were reviewed and edited for accuracy, consistency and completeness. The data was analyzed using descriptive statistics, such as mean scores, percentages and standard deviations. The results were presented in frequency tables, charts and graphs. Regression and correlation analysis was applied to show the relationship between variables. Various tables, charts and bar graphs and diagrams were used to present the data for easy interpretation. The study findings established that SMEs need all market participants to ensure the continued growth of microfinance and thus the continued impact on poverty alleviation in developing countries; lack of access to credit is a major constraint inhibiting the growth of SME’s sector; external borrowing of SMEs is considered to be the cheapest source of financing because of the tax benefits; the collateral requirement affects requirement of private equity on SMEs growth to a great extent and SME’s growth indicators identified in the study findings established an improvement in business efficiency, business costs, increase in sales volume, number of new customer and improvement on new customer satisfaction. The study recommends that SME’s should invest in the right model especially in the private equity space; SME’s should have an appropriate capital structure that generates the maximum profit; Microfinance should serve as a substitute and improve the living standard of the inhabitants and profitable SME’s, which have lot of tangible asset, should be offered as collateral for debt, may have a higher target debt ratio.