EDITORIAL: SMEs cheaper loans lifeline the way to go


The successful SMEs of today are tomorrow’s large firms. FILE PHOTO | NMG

News that small traders will, in the next financial year, start getting low-interest loans from local commercial banks, is to say the least, uplifting, given the challenges that many of them are facing at the moment.

The State has set aside Sh3 billion as seed capital, and even enlisted the support of multilateral lenders to help craft a guarantee scheme for this segment of the economy. However, beautiful as the plan may be, the government needs to show commitment that it is ready to walk the talk.

The credit guarantee scheme is intended to de-risk lending to small and micro enterprises (SMEs), enabling financial institutions to advance loans at interest half the market charges. This has been done in the breach, rather than the observance, in the past and the trends needs to change for the economy to recover.

It goes without saying that SMEs are Kenya’s engine of growth as their operations cut across almost all sectors of the economy, employing up to 80 percent of the economically active population. According to the World Bank, SMEs represent about 90 percent of businesses and more than half of employment worldwide. Yet for years, the State has allowed funding challenges and a punishing policy environment to slow down the prospects of a segment that plays a crucial role in job creation, poverty alleviation and economic growth.

As one of the bright spots in the fight against Covid-19, the State has crafted the credit guarantee scheme to boost recovery of SMEs that have had to close or slow down their operations from early March as part of public health measures.

The guarantee scheme is laudable and should be made a permanent feature as opposed to a one-off measure against Covid-19. In fact, the State should make use of the opportunity presented by this pandemic to craft permanent solutions to the challenges that SMEs face.

Other than access to funding, SMEs face other challenges like market access, multiple levies and unfriendly regulations must need to be fixed once and for all.

Just before the emergence of Covid-19, the number of formal jobs generated by the economy had fallen to a seven-year low in 2019, implying the country should pay more attention to segments like SMEs.

And lest we forget, the successful SMEs of today are tomorrow’s large firms.

Let’s strive to get it right with SMEs, starting from this pandemic going forward.