Local MSMEs primed for Sh23b World Bank funding

Green loans and digital market linkage structures are some of the benefits micro, small and medium enterprises (MSMEs) stand to gain from a Sh23 billion ($143.7 million) World Bank-funded project.

The project seeks to correct some of the market coordination failures that impede MSMEs from reaching their potential.

The Kenya Jobs and Transformation Project (KJET), which was approved in December, also aims to improve the competitiveness of MSMEs and unlock high-quality jobs in the sector.

This will see selected MSMEs benefit from green loans through the establishment of a Green Investment Fund and improved market structures that will unlock the potential of small businesses in the country.

Details of the project show that it will have four components - business environment reforms, MSME cluster competitiveness, green MSME financing and project management as well as monitoring and evaluation.

Under business environment reforms, the project will see the revision of the National Industrialisation and Manufacturing Strategy.

This will be done through technical assistance to the Ministry of Investment, Trade and Industry.

"This strategy will provide direction to industrialisation and manufacturing, specifying policy priorities to create an enabling environment for private sector-led industrial development," says the World Bank in the project details.

It will also provide strategies to align talent and other key inputs for private sector industrialisation.

Apart from the Investment, Trade and Industry Ministry, other implementing agencies in the project are the Ministry of Co-operatives and Micro, Small and Medium Enterprises; State Department, Micro and Small Enterprise Authority; the Kenya Development Corporation (KDC) and Kenya Investment Authority.

Existing structures

MSEA and KDC have been preferred because of already existing structures that were implemented in other World Bank-funded projects.

The project is meant to support Kenya's jobs and green transformation agenda by supporting the MSME sector through an integrated approach focusing on the key drivers of economic transformation.

"The project aims to address government and market failures that prevent high-quality job creation and adoption of green practices by MSMEs, including coordination failures between buyers and suppliers, information asymmetries with respect to capabilities and market requirements, and externalities," says the World Bank.

According to a statement released by the global lender on December 12 confirming the approval of the project, it will benefit at least 45,000 Kenyans, including 6,800 women through new or improved job opportunities.

The project will also increase private sector investments, access to markets and sustainable finance to create and improve jobs.

"The project aims to address government and market failures that prevent high-quality job creation and adoption of green practices by MSMEs, including coordination failures between buyers and suppliers, information asymmetries with respect to capabilities and market requirements, and externalities," reads part of the project details.

Create opportunities

Under component three - Green MSME Financing - the project will create opportunities for the increase of green jobs by improving MSMEs' access to finance through innovative and financial vehicles and products that can support green infrastructure investments.

This component will be implemented by KDC.

"KDC will focus on equity and debt financing to eligible MSMEs through the Green Investments Fund (GIF), which will be established. Thus, KDC will be required to monitor and manage the environmental and social risks and impacts relating to the MSMEs financing," says the World Bank.

KDC will use the Environment and Social Management System (ESMS) already in place following another World Bank-funded project to allocate green loans to MSMEs.

"KDC will sign loan agreements with the eligible MSMEs through sub-loan agreements. The loan agreements will require the KDC to cascade its ESMS to eligible MSMEs. KDC will ensure
that the MSMEs comply with the ESMS requirements and national laws, and this should be reflected in the terms and conditions for the sub-loan agreements," says the global lender.

MSMEs will be required to prepare and implement simplified Environmental and Social Management Plans or summary project reports for approval.

The project will also see MSEA financed to establish digital platforms for aggregation and buyer-supplier linkages.

MSEA is responsible for the second component of the project on MSME cluster competitiveness.

"Also, the component will support the MSME clusters with investment support for common infrastructure to improve agglomeration and downstream market linkages. This will include provision of productive equipment and machinery," says the World Bank.

The project is expected to mobilise at least $27 million (Sh4.3 billion) in private capital to complement the World Bank and the government's investment.