Kenya’s Micro, Small and Medium Enterprises (MSMEs) contribute approximately 40 per cent of the GDP with a majority falling in the informal sector and the contribution is set to rise to 50 per cent by 2025.
Despite accounting for up to 93 per cent of the country’s total labour force, they continue to suffer the pain of underfunding.
Chronic underinvestment at the lower end of the economy has resulted in declining job opportunities, stagnant incomes and deteriorating financial health.
The situation has further been compounded by increasing exposure to shocks including the rising cost of living and the Covid-19 effect as well climate vagaries.
Accordingly, any efforts to reverse this trend are welcome especially at a time when MSMEs continue to struggle to stay afloat due to inflation.
In recent months, the Hustler Fund has emerged as a mouth-watering relief and is so far the most popular affirmative action fund of the William Ruto Presidency.
The fund expected to be launched in December will require all borrowers on this platform to participate in a short-term savings plan and long-term pensions programme.
Every saving made by borrowers will be matched by the government on a 2:1 ratio to a level to be determined by the programme.
The challenge, however, remains the rollout of the fund which was mooted as a part of the larger State's bottom-up economic approach. For instance, while there are about 7.41 million MSMEs in Kenya, only 1.56 million are licensed.
Working on the assumption that only the legal MSMEs will be eligible for funding, a back-of-the-hand calculation implies that a business will only be eligible for a maximum of Sh32,051 if no processing fees are charged on the loans.
The potential failure of the Hustler Fund can be inferred from the previous government interventions over the years.
Soon after Kenya gained its independence in 1963, the government embarked on efforts towards the revitalisation of the economy through various fiscal and non-fiscal interventions.
More particularly, the Sessional Paper no. 10 of 1965 was ratified with the primary objective of advocating for a mixed approach to economic management.
Based on this, the government sought to localise the Kenyan economy by encouraging private sector participation.
In this, regard, the Kenya Industrial Estates Limited was created in 1967 as a subsidiary of the Industrial and Commercial Development Corporation and, later in 1972, became an autonomous institution entrusted with the tasks of promoting and encouraging the establishment of small-scale industries.
To achieve this, KIE was empowered to negotiate and receive loans, grants and aid from bilateral and other sources for the purpose of carrying out its tasks.
In the 1980s Kenya received support from the World Bank in the form of Structural Adjustment Policies (SAPs) which sought to reduce budget deficits and reduce public expenditure through a range of macroeconomic changes.
Nevertheless, research has shown that compliance with the SAPs as advanced by World Bank negatively impacted the vulnerable sectors of the economy such as the MSMEs.
In response to the failures of the SAPs, the government again adopted the Sessional Paper No. 2 of 1992 on “Small Enterprise and Jua Kali Development in Kenya” (1992) which was hailed as a masterpiece since it filled the policy vacuum for the MSE Sector development in Kenya.
The paper outlined several policy recommendations pertaining to credit, enabling environment and non-financial promotional programmes to enhance the growth of the MSE sector.
To address the shortcomings of previous policies and changing economic landscapes, the government adopted several other interventions including the Sessional paper No. 2 of 1997 on Industrial Transformation to the year 2020 and the Sessional paper No.2 of 2005 on the Development of Micro and Small Enterprises for wealth and employment creation for poverty reduction recognises the importance of a well-functioning policy on MSEs as critical for attracting and spreading investment in both urban and rural areas.
More recently, the government established the Youth Enterprise Development Fund (2007, the Women Enterprise Fund (2007), the Micro and Small Enterprise Authority (MSEA) (2012) and the Uwezo Fund (part of the Vision 2030 blueprint).
While the successes of the said interventions are numerous, there seems to be a lack of a long-term approach to addressing the actual challenges that affect MSMEs in Kenya.
Instead of escapism and adopting political or populist approaches, could the current regime consider a more inclusive and properly researched approach that would benefit the mama mboga?
James is the CEO of Kenya National Chamber of Commerce and Industry.
The opinions expressed herein are those of the writer and do not represent those of the KNCCI