The importance of Small and Medium-Sized Enterprises (SMEs) in Kenya need not be overemphasized. SMEs provide up to 80% jobs in Kenya. This computation is backed by a report titled, ‘Closing The Gap Kenya – Update on key Challenges for the “Missing Middle” in Kenya’.
This important contribution is not surprising. According to the World Bank, SMEs contribute up to 60% of total employment and up to 40% of national income (GDP) in emerging economies. Kenya is one of such economies.
Now, most of these SMEs rely on bank lending for their financing. According to a 2015 study titled ‘FinAccess Business – Supply Bank Financing of SMEs in Kenya’, a research project conducted jointly by FSD-Kenya, the World Bank, and the Central Bank of Kenya (CBK), the total SME lending portfolio in a sampled month – December 2013 – was estimated to be KSh332 billion, representing 23.4 per cent of the banks’ total loan portfolio.
But lately, most of these Kenyan SMEs are unable to access this financing, solely due to the interest rates controls enacted through the Banking (Amendment) Act, 2016.
The SMEs are now eager to have a review or total removal of these interest rates controls, which capped the lending rates for all banking institutions at 4% above the base interest rates set by the Central Bank of Kenya.
SMEs want availability of the money to do business regardless of the prevailing rates. The SMEs feel that access of finances availability supersedes the issue of rates, any day, in order to help them continue with their operations as well as expansion.
It must be said that this capping has been counterproductive and is ill advised as I stated 3 months before the same was enacted.We have seen many SMEs stagnate, not taking in new employees and having minimal expansion if any.
Critically, this Interest Rate Capping is discouraging innovations at the SMEs level. It is also evidently leading to credit rationing and distortions, to the detriment of this key segment of the Kenyan economy.
Yet, the future of Kenya and the East African community at large lies on having policies that favor SMEs. A World Bank Group study points that there are between 365 and 445 million MSMEs in emerging markets: Out of these, 25-30 million are formal SMEs; 55-70 million are formal micro enterprises and 285-345 million are informal enterprises. Exposing SMEs to negative policies is exposing millions of citizens to negative financial trickle-down effects.
It is therefore the high time that a solution is found to safeguard SMEs growth in Kenya. In retrospect, SMEs also have a responsibility to wake up from their slumber and join lobby groups such as Kenya Association of Manufacturers (KAM), Kenya Private Developers Association (KPDA), Kenya Private Sector Alliance (KEPSA) amongst other bodies.
Joining these lobby organizations will mean that their current small voice will be amplified and clearly heard. We must strive to fortify our SMEs, to make them robust. And leading by example, I plan to tour over 20 counties in 2018 to empower the SMEs under the banner, ‘Going Beyond – County Empowerment’.