Abstract

The SMEs play an important role in economic growth and development in Kenya. However, in Kenya, SMEs are faced with survival problem. Their rate of failure is high and alarming. It is from this background that this study sought to investigate the cause of this failure by ascertaining the linkage between Equity Financing Strategy and the Performance of SMEs in Kakamega Municipality, Kenya. The Research Problem was formulated to answer the question; what are the Effects of Equity Financing Strategy on the Performance of SMEs? In so doing, the study ascertained causal linkage between Equity Financing Strategy, and the Performance; moderated by types of ownership and Sizes of Firms. To achieve desired results, this study employed a Descriptive Survey Research Design that employed a questionnaire with dichotomous questions to collect data from the respondents and made interviews with top management of the respective enterprises. This study was of significance to stake holders in financial sector, investors, business community, the government and the general public by: (1), providing a better understanding for designing lending policy, (2), providing a mechanism for regulating and controlling volume of credit to SMEs, (3), complementing the existing studies and contributing to knowledge on optimization of performance and (4), strengthening further research in this area. The study found evidence of strong correlation between Equity Financing Strategy and the Performance of SMEs. It also found that SMEs in Kakamega Municipality, Kenya were “financially starved”.

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