Why It May Be Difficult For Small Companies To Raise Debt Finance In Kenya (Say Jua Kali Companies)

• Lack of security
• Ignorance of finances available
• Most of them are risky businesses as there are no feasibility studies done (chances of failure have been put to 80%).
• Their size being small tends to make them UNKNOWN i.e. they are not a significant competitor to the big companies.
• Cost of finance may be high – their market share may not allow them to secure debt.
• Small loans are expensive to extend by bank i.e. administration costs are very high.
• Lack of business principles that are sound and difficult in evaluating their performance.

Solutions to the Above Problems

• There should be diversification of securities e.g. to accept guarantees.
• Education of such businessmen on sound business principles.
• The government should set up a special fund to assist the jua kali businessmen.
• Encourage formation of co-operative societies.
• To request bankers to follow up the use of these loans.