Analysts say there is a worrying mismatch that is not supported by the balance of payments method of valuing a currency.

[dropcap]K[/dropcap]enya and the world at large is bubbling with the lucrative idea of an entrepreneurship mindset. All eyes are trained on the budding entrepreneur as the solution to the ballooning unemployment c****s across local and international job markets.

Governments are burning the midnight oil urging youth to shift their focus from job seeking ventures and evolve into job creators instead. Very candid acceptance that times are changing from white to blue collar jobs for economic development.

Allure of entrepreneurship

Many conferences, seminars, webinars, expos and initiatives aimed at offering logistical support to upcoming entrepreneurs are taking the centre stage. In fact, entrepreneurship is turning out to be a flowery option to many, employed and unemployed.

The world of business has an alluring trait of making excess dollar depending on the time one puts into their lucrative business idea. Small business has no limits and can be driven to greater heights with proper focus and determination.

Business networks linking successful and upcoming entrepreneurs are being formed daily and being used as business motivational platforms. With all this  positive energy being exhibited, it would be unwise to deny the  fact that entrepreneurship is the next big thing in Kenya, Africa and the world.

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Despite all the hullabaloo about entrepreneurship though, we cannot hand wring and say that it comes without challenges and hurdles along the journey.Before a new business outfit crawls, learns to walk and grows into a strong and vibrant Small and Medium Sized Enterprise(SME), a lot of sweat must have been shed in digging and putting up the foundation of the young business. European Union Analysts advise that your business is not an SME if it is not registering a turnover of 10 million euros per annum. Quite a feat indeed.

So what ails the entrepreneurship sector so much that not many business owners live to realize the EU SME targets?

Capacity financing

Firstly, there is the unending migraine of limited capacity financing. Most businesses locally and globally launch their operations with funds from family, savings, friends and general well wishers. At this stage, such funds come in handy in rolling out a lucrative business idea but problems arise when the business owners feel the need of taking their new business outfits to the next operational level.

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What happens in most cases is that such businesses either face their immature demise or eventually remain small for eons to come. Unsustainable sales levels force business captains to remain below Break Even Points  and capacity financing is much needed at such trying moments. Brave entrepreneurs with high appetite for risk quickly collate a coherent business plan which they present to financial institutions in the hope of acquiring business credit. Majority go down with their new business outfits.

Limited internal competencies

The second impediment to business start-up survival and growth is that most budding entrepreneurs have limited internal competencies and lack  medium term and long range plans with their new business ideas. The other group that has elaborate visionary plans lack tenacity and adequate physical and mental energy to drive their noble business ideas to their intended destiny.

A customer consults with a banking manager at Ecobank Kenya.

The last hurdle is not much of a mountain to surmount since motivational programmes are all over the globe.

Limited capacity financing is where much work and lobbying lies. A tussle exists here in Kenya between financing policy makers and service providers that is quickly stifling small business and SME growth in the country. The bone of contention is the new interest rate capping law.

Service providers have argued persistently that the new laws changed the way they perceive and rate debtors suitable for business lending.They have actually posed that Government Paper is more secure and has guaranteed returns than SME lending. Remember that initially, bank credit managers could give unsecured loans as long as a debtor could accommodate the interest rate agreed and pay the credit advance on time as it falls due.

Capping interest rate, stifling credit

A loophole arose though that gave bankers the mandate to vary the interest on loan at will depending on prevailing market conditions. Debtors, on the other hand, ended up losing property worth millions owing to auctions occasioned by the inability to repay sky-rocketing interests on loan signed for in the loan agreement forms due to a clause that allowed arbitrary interest rate variation. This led to a public outcry that jolted policy and law makers into remedial action and that’s how interest rate caps came along.

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Now, this has led to another headache. Strategic managers and planners in commercial banks have shifted their profit making ventures to Goverment Paper and have considerably shrunk SME lending to try and shore up or sustain their bottomline. Staff cuts are another measure they have resorted to in response to the interest rate caps introduced into the financial market.

I would not like to look like an ‘Economic Pharisee”  but SME lending at  14 percent  is much more lucrative than Government Paper which is a low risk-low return instrument aimed at preserving and not growing capital. Period.

SME lending risky? Execuse me

Another point of concern is, when did SME become risky at 14 percent lending? I thought with the reviewed credit rating and insistence on collateral before loan approval would help bankers have cleaner and healthier loan books. We are taught  in economics that business is a game of numbers and we can close our eyes and say that the interest rate cap ought to have triggered more appetite for credit.

Let more people borrow at low rates and follow the right financing procedures. I firmly believe this was the intended spirit of the new law. What  happened instead? The financial service provider and debtor as well went into hibernation.

Very sad indeed, but ample philosophers insist that there is always light at the end of the tunnel. A successful business owner will soon cut through the credit go slow and turn it into a profitable business opportunity.

I am 100 per cent sure that not very long there will come a small banker, SACCO, Venture Fund, or Angel Investor who will embrace the small business and SME sector and their risky credit rating, listen to stakeholders in the sector, coherent business plans or not, package a product and smile all the way to her financial Nirvana.

Happy borrowing.


Maina Gachanjah is a Marketing Consultant at Juhudi Investments Consultancy. Email: [email protected]

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