Most MSMEs now use business bank accounts — report

A majority of small enterprises are now operating business bank accounts as opposed to using private accounts held by owners to transact business, indicating a move towards formalisation.

A new report by banking industry lobby Kenya Bankers Association (KBA) and the Japan International Cooperation Agency (JICA) shows 80.4 percent of MSMEs operate a bank account in the business name, while the remaining 19.6 percent use personal accounts for their business operations.

This follows aggressive moves by commercial banks in introducing accounts and loan products tailored for small businesses as they compete for a greater share of the MSME segment.

“However, there is a narrow distinction between borrowing on a personal capacity and for business reasons among enterprises, as 54.3 percent of enterprises apply for personal loans and 45.7 percent apply for business loans both to support their businesses,” the report stated.

The annual banking sector report by the Central Bank of Kenya also indicated that there were 915,115 MSMEs loan accounts in commercial banks and microfinance banks as of December 2020, up from 646,018 in 2017.

The report, based on the Inua Biashara programme, also showed access to credit is still difficult for both formal and informal entities. This is attributed to challenges in obtaining or preparing documents that lenders need, the poor financial position of the enterprises and lack of collateral.

“The MSMEs that borrowed start-up capital from a bank were primarily influenced by huge investment outlays required to set up and grow the enterprise and the low cost of credit relative to other forms of financing,” it added.

Even so, most businesses in the country are not registered and open accounts and access loans with trading licences.

The data shows there were close to eight million MSMEs as of 2016 but only 1.56 million were registered.

This has hindered the businesses from accessing the loans such as under credit guarantee scheme launched by the government last year to cushion the SME sector from the impact of the Covid-19 pandemic.