How to fix challenges facing small and medium enterprises

Jeniffer Waiyaki, the Director of Wajen Wholesalers

Small Medium Enterprises are a significant contributor to the country’s Gross Domestic Product. Statistics indicate that 98 per cent of companies in Kenya are small and micro enterprises which employ upto thirty per cent of the Kenyan population.

But despite the immense contribution to the country’s economy, the SME sector continues to face challenges that threaten its existence – with some having to close shop.

One of the major challenges facing the SMEs is financing – access to credit from financial institutions which makes it impossible from the onset. Yet it is a sector that absorbs most graduates from Kenyan universities.

But SMEs could now be telling a different story, all thanks to banks keen on SMEs banking as well as Pan-African financial institutions that have come in handy to promote economic development by providing guarantees to financial institutions to finance Small and Medium Enterprises.

A quick chat with entrepreneurs reveals a lot that needs to be addressed if SMEs in various sectors were to remain operational. From the energy, agribusiness, among others, the trend is almost the same. In Syokimau, Machakos County, we meet Stephen Kigera. He is an entrepreneur, founder of Empower Installation Contractors, an electricity installation company. He is at work, and tells us of his business and challenges he has faced in the sector.

“We started in Mombasa as a sub-contractor in distribution lines, and also in Central Kenya. We did about 150 kilometers of power lines but our milestone came when we installed power at a church a long Mombasa Road,” he narrates. However, getting contracts has not been a walk in the park, and sustaining them has equally been a huge task.

“Due to the demand of finances for the projects, we have to partner with financial institutions who come from the onset of the bidding if you win you get into the other level of the performance,” Kigera says.

Adding that, “Because of the capital investment involved we partnered with Credit Bank in 2015. This project is worth 350 million, so you have to get the performance board which is 10 per cent of that. The major challenge here is cash flow, meaning money in and money out, because of the slow process, what you need is not what you get.”

Another entrepreneur, Jeniffer Waiyaki in Kangemi shares her story. When she started in 2015, she invested heavily in manufacturing of polythene bags and was doing very well until the ban on plastic bags was effected.

Entrepreneurs seeking Financial Services

“When we got into manufacturing, we decided to get state of the art equipment from China to the tune of Sh25Million. We were financed but in 2017 our business suffered a huge set back after the plastics ban. We had to change the business strategy and try something else. That’s how we got into this wholesale business and we were lucky that our financial partners stood with us but it has not been easy for us”

Betty Korir, the Chief Executive Officer of Credit Bank notes that there is a huge SMEs financing gap in Kenya.

“As financial institutions, we need to look at SMEs as they sit today and be able to transition them to ensure that their businesses are sustainable. On their part, SMEs need to figure out certain aspects of their businesses that are not right. They have to ask themselves questions that matter; Is the business viable? Is it sustainable?” If the profits are going to be sustainable then a financial institution should be able to lend the SME money,” she notes.

The government through Micro and Small Enterprise Authority also says they are working around the clock to streamline financial support to struggling SMEs. Charles Waithaka the Chairman Board of Directors of MSEA says plans are underway to operationalize the SMEs Fund and will soon be customized to meet the significant needs of SMEs.

Important to note is that Pan African financial institutions such as Africa Development Bank as well as African Guarantee fund also play a critical role in empowering SMEs across the continent. African Guarantee Fund Deputy CEO Jules Ngankam says they have spent over one billion dollars in the last six years to support SMEs targeting to improve their business potential.

“We go to the bank to make sure that they unlock the potential financing that they may have for SMES,” he says. “In our six years of operation, we have been able to issue 1 billion dollars of guarantee, meaning we were able to unlock 2 billion dollars of financing towards SMEs and we have done so to 100 plus,” he adds.

In May last year, Five Kenyan commercial banks also unveiled a Central Bank of Kenya backed mobile-based credit scheme dubbed Stawi aimed at improving access to funds for Small-to-midsize Enterprises.

Stawi offers unsecured loan products ranging from Sh30,000 up to Sh250,000 with repayment profiles of 1-12 months, at an interest of 9 per cent per annum.

Customers will be scored and advised of their credit limit. Additionally, they are eligible for a top-up functionality once 80 per cent of the loan borrowed has been repaid or track record of three months’ repayment.

Speaking during the launch at Gikomba Market, CBK Governor Dr. Patrick Njoroge said that the facility responds to the unique financing needs of MSMEs.

“Until now, lending to MSMEs has been constrained by the lack of reliable information to assess their creditworthiness. The innovation in this product is the use of all data on customers’ transactions to fill this gap. In that sense it is revolutionary.”

“Small and mid-size enterprises are the lifeblood of any economy, but many have struggled to secure the necessary financing to continue operations in the current economic climate,” said Dr. Njoroge.