Higher education in Kenya is characterized by students' preference for public universities due to government financial support associated with such an admission. This demand for university education has significantly increased and continues to swell against a backdrop of decreasing ratio of financial allocation to universities from the Government. Since 2000/1 academic year, only about 6% of registered Kenya Certificate of Secondary Education candidates, which is an equivalent of 25% of candidates who meet minimum university entry requirements, gets admitted on Government sponsorship to public universities. It is this surplus supply of qualified students that created market for privatization of university education in public and private universities in Kenya. It is argued in this paper that the current arrangement in financing higher education in Kenya is inadequate and aggravated by ineffective university management. Lack of enough funding has lead to shortage of basic learning resources and teaching staff, students' agitation and administrative weaknesses. The effect of the inadequate financing on delivery of services at the universities is questionable quality of graduates. It is recommended that the Government should enhance managerial capacity of top university managers besides developing strategies for meeting financial gaps required by the universities for production of quality graduates.