By Steve Umidha
Small and medium enterprises (SMEs) are relying heavily on mobile loans for funding more than ever as banks continue to shun credit issuance to small business owners, despite the lifting of interest rate caps last year whose intention was to free up credit flow to the sector.
This has been blamed on tough conditions set by commercial banks a move that has seen small businesses turn to informal credit channels which though less bureaucratic but are more expensive – albeit mobile lending apps have today provided a respite to majority of small traders.
As a result, five state agencies on Wednesday partnered to spur growth among small business through funding and technical support.
IDB Capital, Industrial, Commercial Development Corporation, the Kenya Industrial Estate, the Micro, Small Enterprises Authority and the Kenya National Trading Corporation will drive President Uhuru Kenyatta’s SME agenda, and was mooted on Jamhuri Day with plans to start Stawisha SME Mashinani, coupled with unspecified administrative measures to deal with the challenges facing the sector.
The state bodies will share information in order to contribute to growth of MSMEs at the grassroots level.
Small businesses, especially in the informal sector have been a key contributor to Kenya’s economy accounting for close to 30 per cent of the country’s GDP.
Conventional banks consider such individuals as being ‘too risky’ with majority of them informal, young, and with less publicly available information, and operate in unfamiliar sectors, all of which results in higher information asymmetries and risk, discouraging bank lending.
Last year, Central Bank of Kenya, in draft Kenya Banking Sector Charter compelled commercial banks to increase loans to small businesses by 20 per cent.
“Each institution to evaluate its existing processes to promote lending to MSMEs (Micro, Small and Medium Enterprises), as well as document the initiatives that the institution is undertaking to promote access to finance for MSMEs,’’ the charter read.
According to a study on SMEs Competitiveness Report 2019 by the International Trade Centre, Ministry of Trade and Kenya National Chamber of Commerce and Industry (KNCCI) released in September last year shows that 33 per cent small traders avoid commercial bank loans despite their need for credit.
SMEs represented the high growth in employment creation having scooped 83.6 percent of the 846,000 jobs created across 2018 as per provisional data from the Kenya National Bureau of Statistics (KEBS).
Trade Ministry’s Chief Administrative Secretary Lawrence Karanja said the agencies will be tasked to credit SME projects which have been sidelined by lenders due to lack of security.
“We want to look at the small enterprises and see how we can promote them as the project focuses on implementing the big four agenda,” Karanja said.
The programme which has been established as a one-stop-shop has so far secured Sh4 billion in consolidated funds geared towards small business funding.
Through the Micro and Small Enterprise Authority, a small business owner will be able to access between Sh10,000-Sh200,000 worth of capital, while the Kenya Industrial Estate will offer Sh50,000 to Sh20 million in SME loans.
IDB Capital and Industrial and Commercial Development Corporation will lend between Sh5 million-Sh200 million and 50 million to Sh1 billion respectively.
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