Raising finance for small and medium sized enterprises : a case study of Thika Municipality
SMEs are one of the fastest growing sectors of the economy. Each SMEs employs between I and 50 employees operating at a fairly small scale. In the recent past SMEs have been receiving a lot of attention by both the government and the donor community. The private sector is also now demonstrating interest through the formation of the various MFIs that have come up in the recent past. This study seeks to identify the problems encountered by SMEs in their attempt to raise capital. It also seeks to identify the sources of information available to SMEs on the capital sources available to them and the sources of capital being used more often by the SMEs. Whereas several forms of finance exist in theory, the study seeks to determine the availability of the various forms of finances, accessibility and the cost implications. The study was conducted within Thika municipality in Thika district, central province of the Republic of Kenya. Thika municipality is an industrial town boosting of mainly small-scale family owned industries. It is a good representation of the SMEs sector in the country. The studies aimed at assisting potential entrepreneurs anticipate potential difficulties in raising finance and develop possible solutions. It is intended to benefit the financial institutions by making them aware of the issues in raising finance to enable them develop suitable products. Scholars, Policy makers and other providers of capital will find the findings of this study useful. In order to achieve the objectives, primary data on the business background, information sources, capital sources and their use was gathered. Primary data was collected from respondents in Thika Municipality using a self-administered questionarre. Secondary data was also obtained from the existing literature specifically the FAQs brochures by lenders. The analysis of the gathered data reveals that most SMEs ranked raising finance as the biggest obstacle to business expansion. Personal savings and trade credit of financing were more favored than bank loans, Saccos and MFI's. Among the various sources of financing bank loans and Saccos were rated as expensive and / or inaccessible From the findings of the study, it is fairly safe to conclude that a lot more information needs to be disseminated to the entrepreneurs on the ways and means of raising cost effective capital. Similar studies in other towns are necessary to shed a lot more light in this important growth factor of SMEs.