Financing Options and Financial Growth of Small and Medium Enterprises inKirinyaga County, Kenya
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Date
2026-01
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Stratford Peer Reviewed Journals and Book Publishing
Abstract
Small and Medium Enterprises (SMEs) are crucial to Kenya's economy, serving as its
foundation and supporting numerous families. However, accessing financing remains a
persistent challenge for these enterprises. While extensive research examines factors affecting
SME performance and profitability in Kenya, few studies have explored constraints SMEs
encounter in securing financing from various sources and how these challenges relate to overall
performance. Most studies focus on industry or macroeconomic factors rather than financing
options. This study investigated the effect of financing options on the financial growth of SMEs
in Kirinyaga County, Kenya. Specific objectives assessed the effects of equity financing, debt
financing, and informal financing on SME financial growth. The study's significance lies in its
potential to inform SME owners and policymakers about effective financing strategies that
enhance financial growth, ultimately contributing to sustainable SME development in
Kirinyaga County and fostering a more robust regional economic environment. Theoretical
frameworks including Pecking Order Theory, Trade-Off Theory, and Agency Theory guided
the analysis, providing comprehensive understanding of how different financing options affect
SMEs. The study employed a descriptive research design involving 139 SMEs selected through
Yamane sampling strategy from 213 registered SMEs as of December 2023. A pilot test refined
the questionnaire, ensuring clarity and relevance. Data collection utilized structured
questionnaires, prioritizing ethical considerations including confidentiality and voluntary
participation. Operationalization and measurement of variables defined key constructs related
to financing options. Diagnostic tests assessed data quality. Data presentation included
descriptive statistics (means and standard deviations) and inferential statistics to establish
variable relationships, analyzed using SPSS version 23. Equity, debt, and informal financing
demonstrated positive significant effects on SME financial growth in Kirinyaga County. The
study concludes that equity financing provides essential capital for expanding operations,
investing in new technologies, and increasing market reach. Debt financing enables businesses
to invest in expansion, improve operations, and enhance market competitiveness. Informal
financing provides crucial capital to SMEs struggling to access traditional bank loans due to
stringent requirements. The study recommends that the County develop targeted financial
literacy programs educating SME owners about equity financing options and effectively
presenting business cases to potential investors. The government should create platforms for
SMEs to showcase business plans and financial needs to potential investors and lenders,
facilitating connections that could lead to better financing opportunities
Description
Research Article
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Citation
Kinyua, M. M., & Mungai, J. (2026). Financing Options and Financial Growth of Small and Medium Enterprises inKirinyaga County, Kenya.Journal of Finance and Accounting, 10 (1), 70-89