NAIROBI, KENYA, JULY 4 ― Global market research company-Ipsos is currently undertaking a study on Small and Medium Enterprises (SMEs) in Kenya, in the wake of increasing growth challenges to the entities in the country and the region.
This includes inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology.
Corruption and an unfavourable regulatory environment have also been cited as barriers to SME growth in the country and the continent at large.
According to Ipsos, the study seeks to understand the SME culture in Kenya, particularly how they compete amongst themselves, and how cultural values impact their competitiveness.
The study will be seeking views from Medium Enterprises that have a turn-over of between Ksh 5 million and Ksh800 million.
“This is the classification that the Kenya National Bureau of Standards gives to Medium Enterprises,” Ipsos notes.
This is part of a similar survey being done in France, India and the US by the Paris Stock Exchange listed research firm, which operates in 87 countries globally.
Most SMEs fall under the informal sector which is estimated to constitute 98 per cent of business in Kenya, contributing 30 per cent of jobs and three per cent of Kenya’s Gross Domestic Product.
Invest In Africa-Kenya estimates SMEs contribute up to 25 per cent of the GDP.
According to IIA- Kenya Country Manager, Wangechi Muriuki, SMEs remain key in the growth of the country’s economy hence the need to support their growth.
“Small and Medium Enterprises are the key drivers of growth in the Kenyan economy, creating about 90 per cent of new jobs every year and contributing to about 25 per cent of the country’s Gross Domestic Product,” she noted.
The survey has received the backing of the Kenya Private Sector Alliance which has urged its members to participate.
“We believe the findings will be of interest to the business community and therefore fully support the initiative,” Kepsa said.
According to experts, a vibrant and expanding SME sector can be a major catalyst of inclusive growth.
However, Small and Medium-sized Enterprises have continued to face difficulties especially in their operating environment.
In Kenya for instance, SMEs continue to face financial constrains which hinders their growth.
Traditional bank financing has remained a challenge to the small entities, which was worsened by the capping of interest rates following the enactment of the Banking Amendment Act in September 2016, which set the lending rate ceiling at four per cent above the Central Bank Rate.
Latest review by the Central Bank of Kenya’s Monetary Policy Committee retained the CBR-base lending rate at 9.5 per cent. This means commercial banks can only charge up to 13.5 per cent.
Banks have hence shifted their interest to government securities, large corporations and other investments, shunning SMEs who are profiled as high risk borrowers.
The growing attention and interest regarding SME development in Kenya has led to a more diversified pool of targeted funding options for SMEs ranging from debt to equity financing.
More Development Finance Institutions are extending credit lines to commercial banks for lending to the SMEs while there is remarkable growth registered in Equity funding in the form of Venture capitalists, angel investors, Private Equity funds and grants among other initiatives.
“Despite the growing number of targeted efforts for financing SMEs, the lack of access to finance continually emerges as a critical factor affecting the growth and scaling up of SMEs in Kenya. It remains one of the most debated topics on matters SME,”Muriuki said.
Invest In Africa is among organizations working to enhance SME access to skills, markets and finance in partnership with both leading organizations in Kenya.
The move is aimed at among others; drive job creation and enterprise development in the economy.
Together with its Partners, IIA has built a unique, world-class online technology platform – The African Partner Pool (APP) that currently has a cross-sector database of over of over 1,300 vetted SMEs from Kenya.
The platform directly connects SMEs with larger organizations sourcing for goods and services locally and also offers capacity building to enable address existing skill and knowledge gaps.
Research indicates that micro businesses and SMEs account for 95 per cent of firms in most countries, creating jobs, contribute to GDP, aid industrial development, satisfy local demand for services, innovate and support large firms with inputs and services.
In Africa, SMEs create 80 per cent of employment, establishing a new middle class and stimulating demand for new goods and services.
Reduced lending to the SMEs resulted to a 1.4 per cent decline in the growth of Kenya’s GDP in 2017, a factor the Central Bank of Kenya confirmed noting a significant drop in the number of loans.
“The rising value of loan size vis-à-vis reduced number of loan accounts reflects lower access to small borrowers and larger loans to more established firms,” CBK said in a statement.
Among sectors affected include the retail , tourism, hospitality and jua kali sector.