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Opinion & Analysis

Harnessing power of SMEs to propel economic growth

A traders at his shop in City Market, Nairobi. PHOTO | ANTHONY OMUYA | NMG
A traders at his shop in City Market, Nairobi. PHOTO | ANTHONY OMUYA | NMG 

Starting a successful business is no mean feat. Right from coming up with an idea and turning it into a profitable company can be taxing even for a seasoned entrepreneur. It is much harder for someone who is starting out.

This is because the journey to success is fraught with challenges. However, knowing and anticipating the roadblocks you may encounter in your start-up journey could help you prepare, avoid common pitfalls and eventually break even.

Everybody talks about the role small businesses play in jobs creation, distribution of wealth and in growing economies. In Kenya, small businesses face a unique set of challenges.

According to Deloitte Kenya Economic Outlook 2016, the growth of SMEs is hindered by low funding levels, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology. As a result, most of the small businesses meet their death before they are five years old.

Many SMEs do not have access to finance and credit especially from financial institutions because of the rigorous conditions given to them by these institutions.

These enterprises are not in a position to provide collateral such as immovable assets due to their small asset base. As such, they are left to rely on their own limited resources, borrow from friends and relatives or resort to expensive sources of funds.

Unfortunately, these modes of funding are not viable for the long term.

According to the Economic Survey 2017, 57.2 per cent of the licensed micro establishments required a startup capital of Sh50,000 or less.

This accounted for 94.5 per cent of the total establishments. Licensed establishments which required above Sh1 million as a startup capital were mainly small and medium-sized.

Furthermore, 71.9 per cent and 80.6 per cent of licensed and unlicensed establishments reported family or own funds as the main source of start-up capital, respectively.

Loans from family and friends accounted for 4.2 per cent of the capital sources for both licensed and unlicensed small and medium enterprises.

From the survey, it is clear that banks only financed 5.6 per cent of licensed small businesses.

It is in recognition of the potential that lies in these small and medium enterprises and the challenges that they face, that KCB Bank #ticker:KCB has taken the initiative to create an avenue for start-ups and young entrepreneurs; they pitch their ideas to a panel of established entrepreneurs and venture capitalists in what we call KCB Lions’ Den.

KCB Lions’ Den, now in its second season, looks forward to seeing Kenya’s most daring entrepreneurs get the opportunity to step into the ‘den’ to convince the Lions that their business is worth investing in and in return, offer a share of their company.

If Kenya wants a strong economy and a great future, there are key points that require appropriate attention including financial rescue package to address SME funding issues, equipping entrepreneurs with technical and business skills, friendly investment climate and above all, implementation of sound SMEs policies.

Policies should aim to encourage and promote the development of local technologies. Emphasis should be on the promotion of the local tool industry to reduce reliance on imports. Also, a networking strategy can improve SMEs’ position.

When organised in networks or when they operate through professional organizations, SMEs can reap benefits on multiple levels.

Angela Mwirigi is KCB director of marketing and communications.

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