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Debt financing most popular among Kenyan MSME startups, says new report

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Loans tapped from the International Monetary Fund (IMF) have tripled to Sh335.5 billion. FILE PHOTO | POOL

Debt funding has emerged as the most popular method of raising capital among newbie Micro, Small and Medium Enterprises in Kenya (MSMEs) standing at 42 percent preference ahead of grants and equity financing at 36 percent and 22 percent respectively, a new report now shows.

The Kenya Startup Ecosystem Report commissioned by Kenyatta University and other partners notes that debt as a standalone method of startup financing attains low success levels, with proprietors being forced to seek follow-up financing.

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“The bulk of Kenyan MSMEs seeking investment has raised less than $500,000 (Sh66.6 million), with only a small minority having raised more than $2 million (Sh266.8 million). Debt funding is the most popular type of finance, with 42 percent reporting that they have raised loan capital,” the report states.

The report further shows that only six percent of all startups that participated in the survey are fully bootstrapped with 91 percent acknowledging to have tried raising funds while three percent declined to comment.

In the group that has tried to raise funding, the report says, 97 percent has had some measure of success through grants, debt, safe notes, and equity among other avenues.

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“Results from the survey show that 97 percent of respondents have found the fund-raising process difficult, while only three percent say the process is easy,” notes the report.

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