Title: Subsidies, Firm Size and Financial Sustainability of Micro and Small Enterprises in Kenya
Authors: Paul Ng’ang’a Macharia, Tobias Olweny, Cynthia Stella Waga, Jeff Arodi
Volume: 9
Issue: 11
Pages: 162-173
Publication Date: 2025/11/28
Abstract:
Micro and Small Enterprises (MSEs) are central to Kenya's economic growth, yet many struggle to remain financially sustainable due to limited credit access, high financing costs, and weak internal capacities. Subsidies have increasingly been used to ease these constraints, but evidence on their effectiveness remains limited and context specific. This study examines the effect of subsidies on the financial sustainability of MSEs in Kenya and evaluates whether firm size moderates this relationship. Using secondary panel data from 390 enterprises supported under the National Agricultural and Rural Inclusive Growth Project (NARIGP) from 2018 to 2022, the analysis applies descriptive statistics and panel regression modeling. Financial sustainability was assessed using net profit margin and current ratio, while firm size was measured through the natural logarithm of total assets. The results indicate that subsidies significantly improve financial sustainability, and that this effect is stronger among larger enterprises. The study concludes that although subsidies are an effective support mechanism, their impact is not uniform across firms. It recommends targeted subsidy programs complemented by capacity-building initiatives and policies that promote enterprise growth to ensure that smaller MSEs can fully benefit from financial support instruments.