Paper

How Do Small Firms in Developing Countries Raise Capital?

Levels of education and training of SME owners have a positive impact on borrowing

This paper utilizes a unique comprehensive dataset, drawn from the 1999 baseline survey of some 2000 micro and small-scale enterprises (MSEs) in Kenya. The authors:

  • Analyse the financing behaviour of these enterprises within the framework of a heterodox model of debt-equity and gearing decisions;
  • Study determinants of the success rate of loan applications.

Results from the research highlights three major findings:

  • MSEs in Kenya obtain debt from a wide variety of sources such as family, friends, co-operative banks, ROSCAs and NGOs;
  • Debt-equity and gearing decisions by MSEs and their success rates in loan applications can be understood by relatively simple models which include a mixture of conventional and heterodox variables;
  • Measures of the tangibility of the owner's assets, education and training have a significant positive impact on the probability of borrowing and of the gearing level.

About this Publication

By Green, C., Kimuyu, P., Manos, R., Murinde, V.
Published