Small businesses, creditors face new uncertainties

By Steve UMIDHA

Two and a half years into the Coronavirus pandemic, small business owners say they are just beginning to recover from the sudden blow that hobbled many of them during the early 2020 restrictions.

Since then, coupled with global inflation brought by the war in Europe and the 2022 general elections, individual business owners have had to deal with surging operation costs as well as large swings in reduced consumer demand.

At the same time, borrowing costs are going up as the Central Bank continues to raise interest rates in the hope of slowing the economy enough to curb decades-high inflation.

Now they are barraged by diverging economic sentiments that have many of them wondering what to do next. Their reasons for the new uncertainty are manifold.

Those who spoke to us, are largely concerned about the lack of credit and the high cost of getting it in sustaining their businesses and aren’t even sure of future survival.

“It hasn’t been easy. Just when we thought we had a new government in place that could listen to our needs then it started to frustrate us with heavy taxation in the middle of a weak economy,” offers Moses Opalo – an auto dealer and a mechanic based in Nairobi’s Langa’ta area.

Further adding that, “We no longer get the many walk-ins we previously had and have been forced to adjust our rates (for car servicing) for the few customers looking our way,” complains Opalo.

He is not alone, Elizabeth Gitau, a director at Shamim Collection, a retail dealer in second-hand clothing for kids is also a worried Kenyan. And for the first time after over 10 years of successfully running her business, the mother of three is entertaining the thought of either winding down or branching out into something else.

Her main worry is the affordability and access thereof of credit to upscale her enterprise in Ngumba Estate, Kasarani district.

“We largely depend on loans to run our businesses but it hasn’t been easy. Accessing these loans, most of which are chama-based also have very tight repayment terms,” says Ms. Gitau.

What’s worse, the depressed economic environment that has hindered their entrepreneurial spirit, has been made severe by high inflation, rising interest rates, fluctuating value of the Shilling against the dollar and dwindling savings.

These factors have also limited the ability of credit firms synonymous with small, and medium enterprises (MSMEs) to lend ‘freely’ owing to the increasing danger in loaning the struggling sub-sector.

“Businesses are inherently vulnerable now. Nearly half of businesses in Nairobi are on the verge of closing shop. Assuming you imported goods at the rate of Sh117 against the dollar 6 months ago, you cannot repay it based on the current rates, it means you will have to get a loan to repay it,” says Peter Macharia – an economist and CEO of microlending firm Jijenge Credit limited.

Adding, “Much as we would love to increase our loan portfolio to our customers, current economic challenges limit us from doing so because very few Kenyans now have the ability to pay back.”

Data on actual struggles of Kenyan businesses will not come available for several months, so it is not possible yet to measure the effects of the cooling economy. According to him, whether these businesses pull through could have broad implications for the health and dynamism of the overall economy.

New avenues such as the Hustler Fund, also known as financial inclusion fund – a loan project led by the government that provides instant loans to Kenyan citizens upon request, depending on who you ask, hasn’t done enough to address the financial challenges that have handicapped business owners.

It remains to be seen how its revamped version dubbed Hustler group loan launched during the 60th Madaraka Day celebrations in Embu last week, will meet its intended purpose.

“It is aimed at facilitating people access funding through groups,” said President William Ruto while unveiling the micro enterprise loan product capped between Sh10,000 and 200,000 at 7 percent interest calculated pro-rata or daily. The loan has flexible repayment terms of 1, 3, 6, or 9 months, with a maximum term of one year.

Total number of digital transactions as of last week stood at 42.5 million through which 20.2 million Kenyans have accessed nearly Sh30 billion, and repaid Sh19.7 billion, with 7 million being repeat customers.