Personal Finance

SMEs growth factors go beyond financing

Financial service providers should tailor products beyond SME funding. FILE PHOTO | NMG 

Without doubt, across all levels of development, small and medium enterprises (SMEs) are the engines of growth.

They create jobs, contribute to gross domestic product, support industrial development, satisfy local demand, lead in innovations and support larger industries with inputs and services.

In Kenya, the SMEs have grown to a highly vibrant and dynamic sector of the Kenyan economy over the last few decades.

According to government estimates, there are about 1.56 million licensed and 5.85 million unlicensed businesses in both formal and informal sectors. These businesses engaged about 14.9 million persons in employment.

Politically, SMEs have been credited for helping to promote reforms. The sector plays a big role in tailoring and pushing for reforms that favour a level playing field. This is enabled by the fact that the small-business sector empowers and grows a strong middle class.


In turn, this class has a stronger voice in seeking political reforms and sound economic governance.

Given the critical role of small businesses in the economy, it’s natural to ask the question — are stakeholders doing enough to serve their needs? The reality is that a lot remains to be done to elevate this sector to its rightful level.

The Deloitte Kenya ‘Economic Outlook 2016’ report revealed that SMEs are still being hindered by many challenges including inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology.

In addition, corruption and other unfavourable regulatory environments present hiccups to this vital engine of the economy.

Stakeholders must, therefore, endeavour to reduce the barriers that are slowing them down. While banks remain predominantly providers of finances, SME needs go beyond basic loans.

The time has come to pay greater attention to these needs to help them realise their full potential.

To begin with, there is a need to accelerate SMEs’ access to international markets.

This can be achieved through expert facilitation in the involvement of product development and facilitation of the participation to eye opening forums and exhibitions. For example, the creation of the Barclays Business Club in 2003 has gone on to serve this purpose. With a focus on four key pillars of business performance management — access to market, business knowledge and skills, and mentorship and networking, the bank in partnership with other like-minded organisations has so far supported the development of more than 9,000 businesses.

Another critical factor for stakeholders to consider would be easing the access for SMEs to technology.

Competitiveness increasingly depends on the ability to incorporate new technology and management practices.

Improved technology will play a great role in the production of goods and services as well as marketing and human resource management.

Stakeholders should endeavour to provide appropriate processing technology linkages and deliver special programmes and forums for technology transfer offered by various agencies.

They must also get involved in quality product development. This would not only help fetch higher prices in the market but would also improve the management of production costs.

Research into new methods and technologies as well as facilitation of experts’ workshops would be a good beginning for improved production.

Even as access to financing improves, there is conclusive evidence that most small and medium-scale processors and manufacturers still do not have adequate access to credit.

There is a need for financial service providers and other stakeholders to develop appropriate products to address this anomaly. SMEs need to be trained on how to develop business plans that meet the requirements of financial institutions.

In conclusion, while bank financing will continue to be crucial for the SME sector, more diversified options for could support long-term investments and reduce the vulnerability of the sector to changes in the business environment.

The writer is head of SME at Barclays.