A shopkeeper at work. New research shows SME owners are turning to mobile apps to boost their businesses.

Small and Medium Enterprises (MSMEs) constitute 98 percent of all businesses in Kenya, create 30% of the jobs annually as well as contribute 3% of the country’s Gross Domestic Product (GDP) according to the Central Bank of Kenya (CBK).

But after the now-repealed cap on interest rates took effect in 2016, SMEs struggled to access credit from lenders who shied away from lending to high-risk profile customers due to the lack of flexibility to price the risk.

Despite the potential and importance of SMEs to the Kenyan economy, a report by management consultancy firm Viffaconsult shows that SMEs are still struggling to access much-needed capital that would otherwise grow their businesses.

The report dubbed the 2019 SME Finance Access Report shows that owners were their own biggest source of financing in 2019 with 82% of SME owners in Kenya having to rely on themselves to fund their businesses, a 2% increase from the 80% posted in 2018.

Grants were the second-largest source of funding for this business segment at 27%.

Family and friends are the third-largest sources of finance for SMEs with 18% of the respondents indicating that they got funding from this group in 2019, a 2% decline from the previous year.

Angel investors (individuals who provide capital for a startup in exchange for equity) were the fourth-largest source of funding during the period under review standing at 9%

Mobile loans are an option for SMEs but according to the report, this short term financing does not appeal to SME owners.

“The Kenya SMEs continue to face challenges in access to finance underpinned on Kenya government heavy domestic borrowing mopping up funds coupled with delayed payment to SMEs by national government ministries and parastatals and county government,” reads the report.

Reasons For Financing

Expansion to an untapped market (65%) was the biggest reason why SME owners/administrators took loans an indication of increasing appetite to grow their revenue bases.

Marketing was the second most popular motivation behind the acquisition of the loans with SME owners keen to make their products or services more visible.

Purchase of equipment was the third most popular motivation behind the loans (40%) followed by product development (26%) and financing of an existing business order (22%).

Finance Value

The report shows Ksh1-50,000 (27%) and Ksh1 million and above (27%) were the most popular amounts with borrowers.

Ksh251,000 to Ksh500,000 and Ksh101,000 to Ksh250,000 were the third most popular amounts with borrowers while Ksh51,000 to Ksh100,000 was the least popular amount with borrowers.

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  1. Thanks for the information concerning MSEMs. We being one of the percentage.
    Yes loans are hard to access this days. But with these current economy business fraternity is facing, its better not to have any loan. Because repaying mode is very challenging.
    Without vibrant money circulation in the market. Situation on the ground is very tight!

  2. Our people need to be educated how things work in business. Giving them funding with little knowledge will not be of much help.


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