This study examined the effect of equity financing on the financial performance of Licensed Microfinance Institutions in Kenya. Over the past few decades, microfinance has emerged as one of the effective sources of finance for socio-economic development in the world and is recognized as an essential tool of financial inclusion. However, the magnitude and the real socio-economic impact of MFIs are still debatable. A significant body of empirical research has questioned the ability of MFIs in the alleviation of poverty and reported their limited impacts on the ownership of assets and consumption. The theories used in this study were Stakeholder Theory and Capital Structure Theory. This study adopted both descriptive research design and correlational research design. The target population comprised of 13 LMFIs. Out of 192 respondents in the target population, 52 respondents were selected. Stratified and purposive sampling techniques were used to sample. Primary data were obtained directly from respondents using a closed and open-ended questionnaire. This data was then analysed using descriptive and inferential statistics (Pearson correlations and regression analyses). Reliability was measured by Cronbach’s alpha test at a minimum threshold of 0.7. This data was analysed using multiple regression models. Statistical Package for Social Sciences Statistics version 27 was used in analysing correlations amongst the variables. Based on the findings of the study, it was concluded that equity financing significantly influenced the financial performance of Licensed Microfinance Institutions in Kenya. Therefore, this study recommends that for Licensed Microfinance Institutions to remain financially stable, Kenya Association of MFIs should formulate policies that would ensure all MFIs have a sound system of sourcing for their smooth running. This study further recommends that Licensed Microfinance Institutions should have alternative measures to stem any financial risks which wou