How friendly lending options can support small businesses – Business Daily

A entreprenuer in her trendy cafe. PHOTO | SHUTTERSTOCK
Over the last couple of months, Kenyans have continuously withstood tough economic times with inflation rising to a high of 8.3 percent on high food prices. This is the third time the rate is outside the government’s targeted band of 2.5 per cent 7.5 percent.
Inflation, coupled with the ongoing drought affecting over 23 countries, the lingering impacts of Covid-19 and a contracting global economy owing to downturns in China and Russia, and further negative spillovers from the war in Ukraine have made things tougher for everyone. Things are not all rosy and something ought to be done.
However, all is not lost, while the country’s economic growth was 7.5 percent in 2021, the central bank of Kenya (CBK) has predicted a 5.5 percent growth in 2022.
According to the World Bank, Kenya is one of the bright spots in Sub-Saharan Africa. With economic growth rates sustained at above 5 percent, Kenya has outperformed the regional average, for eight consecutive years. This year’s expected growth is no exception despite the tough economic times, and it speaks of hope and light at the end of the tunnel.
To begin with, as economic experts and key stakeholders we need to prioritise our support to Small and Medium Enterprises to revive our economy. This, even as we remain optimistic that the inflation rate will reduce, and Kenya’s economic growth will remain strong in 2022.
Today, millions of SMEs in the country can’t access capital to run a successful business due to high-risk perceptions, locking them out of business opportunities which need upfront investment. With an adverse impact on their bottom line caused by Covid-19 among other challenges, lenders often shy away from financing their practice.
Nevertheless, we ought not to forget the contribution of SMEs in our country. Their significance in Kenya’s economy can’t be ignored. They play a pivotal role in job creation and contribute upto eight percent to the gross domestic product (GDP).
The latest CBK data shows that the SMEs currently boast a deposit portfolio of Sh577.6 billion and a loan book of Sh638.3 billion. Microfinance banks control at least five percent or Sh33 billion of the SME portfolio in Kenya while commercial banks control 95 percent which is valued at Sh605 billion. Because of this key contribution to jobs and the GDP, SMEs ought to be cautioned financially. We need them to revive the economy.
Kenya continues to experience steady economic growth, according to the World Bank. The government seeks to improve on this through subsidising production, in the same vein, lenders from across the country should embrace supporting and protecting the existing 7.4 million SMEs in the country.
For starters, bankers, who are key stakeholders in enabling economic growth can do this by offering competitive pricing, flexible collateral, and improving efficiency through a quick turnaround time.
Besides, lenders also ought to diversify their portfolios and introduce financing products and services that would come in handy in reducing the risk exposure for SMEs. In the same spirit, banks not only need to introduce alternative lending options but also be part of a social and economic movement aimed at transforming lives and empowering all Kenyans while seeking key partnerships with SMEs and like-minded institutions that support SMEs.
In addition, banks can widen their nets by giving more financing options to SMEs as exhibited by microfinance lenders. They could, for instance, revamp their trade finance solutions to facilitate both local and international trade and commerce options for SMEs. Key to this revamp should be the introduction of unsecured limits for performance bonds and the consideration of concessionary commissions for agents on a case-to-case basis. This is likely to create friendlier options for SMEs across the country to access bid bonds, Performance bonds, and Advance Payments Guarantees.
Lest we forget, economic activity takes place at the SME level and thanks to devolution, we have hundreds of SMEs that would benefit from welcoming SME policy and friendly financing options. By providing much-needed financial support to improve the capacity of small enterprises to take advantage of unfolding trade opportunities at the devolved level, key finance stakeholders will also be supporting value addition for the SMEs in agro-processing, manufacturing, horticulture, dairy and housing.
As the way forward, I think lenders need to see SMEs as potential mutual partners. With the right procedures, they can overcome any SME-related risks, and secure a robust client base in them while helping to drive economic growth and job creation.
Mr Njoroge is the Managing Director, Faulu Bank

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