24 April 2019

Kenyan SMEs Stifled By Lack of Financing

Kenya's small and medium-sized enterprises (SMEs) are facing difficulty in developing new products and financing existing customer orders to due to lack of finance, a new survey shows.

The survey by Kenya-based consultancy, Viffa Consult Ltd, shows that SMEs have a hard task of marketing their business and paying utilities such as electricity and water. This has been blamed for their stifled growth prospects.

The Viffa report released on Tuesday notes that the enterprises are further constrained by the government's increased borrowing from the domestic market--hence edging them out--and delayed payments to them by the national and county governments.

"SMEs are cutting back on non-critical expenses of marketing and physical expansion, with scarce finances being utilised to pay rent, salaries, water and electricity," said Victor Otieno, Viffa Consult Ltd managing director.

The rapid rise of mobile-based loans as an avenue for SME financing has not helped, a the majority of these loans are short-term and limit long-term investments, the researchers say.

The survey was carried out in April to gather information and opinions about the sources of finance for SMEs and their obstacles in seeking and accessing financing.

According to the report, the businesses continue to rely on owners, their families and friends for finance, but angel investors and grants have increasingly shown interest in financing SMEs this year.

A majority of the entrepreneurs seek between Ksh 50,000 ($500) and Ksh1 million ($10,000) in financing.

SMEs contribute close to 30 per cent of Kenya's GDP, but about 46 per cent of these businesses close within a year of establishment while another 15 per cent fall on the wayside in the second year, according to the Central Bank of Kenya.

According to the Kenya National Bureau of Statistics (KNBS), SME growth is largely hindered by inadequate capital, poor infrastructure, lack of skilled manpower, lack of water and power, and interference from authorities.

In Africa, SMEs account for 90 per cent of the businesses in most countries and create about 80 per cent of jobs.

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