Venture Capital (VC): The all Important MSMEs Financing Strategy under Neglect in Kenya
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Date
2012-11
Authors
Jagongo, A. O.
Journal Title
Journal ISSN
Volume Title
Publisher
Centre for Promoting Ideas
Abstract
Micro, Small and Medium Enterprises (MSMEs) in Afri
ca, have been variously reported to suffer lack of
financial
resources for growth and sustainability, especially
because debt financing for financial institutions
is generally
expensive. That Equity financing through Venture ca
pital (VC) is a non-bank source of funds considered
to be an
important alternative financing for small scale ent
erprising yearning to grow. Studies show that VC h
as the
capacity to reduce problems of information asymmetr
y, adverse selection and moral hazard. VC though to
uted as
the best alternative financial resource for MSMEs
worldwide is still less appreciated by entrepreneu
rs in Africa
in general and Kenya in particular. Empirical stud
ies have shown that VCs portend more risk in financ
ing
MSMEs in earlier development stages, however, with
proportionate breath; reasonable return is expected
from
early stage financing, into their mezzanine, growth
and early maturity stages. Study reports therefo
re provide
that there should be no cause for alarm on the side
of the entrepreneur and the Venture Capitalist. Th
is paper
sought to investigate the level of awareness, appre
ciation and acknowleggement among the Kenyan invest
ment
community about the role Venture Capital financing
play in boosting industrial development through MSM
Es.
The study employed a case study methodology that ut
ilized a sample of 106 MSMES out of a target popula
tion of
229 MSMES registered in Nairobi Central Business Di
strict in Kenya. Data were collected by use of sem
i-
structured questionnaire and personal interviews.
Descriptive statistics including correlation analys
is, ANOVA
and measures of central tendencies using SPSS versi
on 19 were employed to determine the variable assoc
iations,
relationships and dispersion. The main findings wer
e that all entrepreneurship development stakeholder
s were
largely ignorant of the potentials for VCs to bridg
e the MSME financing gap. That venture capitalists
were not
willing to finance MSMEs in Kenya due to their vola
tility, inability to meet the requirements of ventu
re capitalists
and their inexperience in business financial manage
ment. That MSMEs in Kenya were found to be scarcely
in
partnerships, which denied them reasonable capital
base requisite to attract VCs. Despite the fact tha
t VC is one
of the most relevant and important sources of finan
ce for innovative entrepreneurship growth, this stu
dy found
lack of enterprising culture to drive the promotion
, competition, innovation, sector development and
industrialization in Kenya.
Description
Keywords
Micro, Small and Medium Enterprises (MSMEs), Ventur e capital (VC), Equity financing, Debt financing
Citation
International Journal of Business and Social Science Vol. 3 No. 21; November 2012