Why suppliers, shylocks are still top credit providers for Kenyan SMEs


A jua kali artisan at work in Kibuye Market, Kisumu. FILE PHOTO | NMG

Half of the small businesses in Kenya still blame the high cost of credit as the biggest barrier to financial access, pushing them to opt for informal options such as shylocks to cover liquidity shortfalls.

A survey to be launched on Tuesday by the Financial Sector Deepening Kenya (FSD Kenya) and the Financial Access Initiative (FAI) at New York University (NYU) shows that 49 percent of micro, small, and medium-sized enterprises found that high-interest rates and strict repayment timelines prevent them from accessing credit.

The findings from the Kenya Small Firm Diaries study sampled micro, small and medium enterprises (MSMEs) in Nairobi, Kisumu and Kwale engaged in carpentry, car repair, food preparation and metal works for one year from October 2021.

“They frequently look to sources other than banks, such as their own suppliers, for loans, and rarely take any operating risk that could result in negative monthly cash flow,” reads the report. Other barriers to formal loans include a lack of collateral (22 percent), paperwork (17 percent), availability (14 percent) and design (six percent).

While around 60 percent of the small firm owners have bank accounts, which they use for business purposes, the majority move less than a quarter of the transactions there.

Most firms use cash boxes and mobile money/wallets for their transactions, expenses and staff payments.

The report, which also surveyed Nigeria, Uganda, Ethiopia, Indonesia, Fiji, and Colombia, ranked Kenya in the middle of the pack in terms of monthly revenue with 75 percent of the firms making less than Sh240,000.

“This affects the quality of life for employees with approximately two-thirds of staff interviewed reporting struggling to have enough money to obtain necessary items for their families,” it says.

The research done in partnership with FSD Kenya found out that Kenyan MSMEs just like others globally are grappling with volatile earnings affecting business stability.

The firms cited that revenues and expenses fluctuate in unpredictable and hard-to-manage ways from month to month, making it difficult to plan.

“Every time they can seize an opportunity, they have to contend with a wave knocking them back--particularly because of a lack of liquidity and working capital,” said Timothy Ogden, managing director of the global study and the FAI at New York University.

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.