REJECTED

60% of SMEs denied financing in the last three years - report

Lack of collateral was highlighted as the major reason for the snub.

In Summary

•Wylde International head of strategy Kiriinya Kithinji said collateral is often viewed as a disincentive to majority of SMEs in accessing loans. 

•Lack of collateral was highlighted as the major reason for the snub.

Shops in a residential area.
Shops in a residential area.
Image: GODFREY KIMEGA

At least 60 percent of SMEs in Kenya were denied funding in the last three years, a report by consulting firm, Wylde International has revealed. 

Lack of collateral was highlighted as the major reason for the snub as Wylde International detailed a range of turmoil faced by these businesses in its report, “SME Access to Financing”.

The startup state associated with limited experience in running the business also implicated SMEs seeking financing, this as well as low business turnover.

Wylde International head of strategy Kiriinya Kithinji said collateral is often viewed as a disincentive to majority of SMEs in accessing loans. 

"Other reasons include being listed on the Credit Reference Bureau, lack of consistency in the bank statements, lack of business permit. Alternative less restrictive financing requirements should be reimagined and adopted to enable businesses access funding,” Kithinji said. 

According to the report, debt financing that is mostly provided by the banks, Micro - Finance Institutions and non - banking institutions is the most preferred type of financing for SMEs as opposed to equity financing.

The latter, Wylde International found, tends to have a stringent investment assessment criterion as well as grants. 

Working capital stood out as the dominant purpose for financing, followed by asset financing, and product diversification. 

The report was aimed at driving a culture of data driven decision making. Data collection was conducted throughout November 2021 targeting SMEs operating in Kenya from the 47 counties of Kenya except for Mandera county.

140 business respondents submitted the survey forms remotely.

The report also revealed there is need for strategy is the most important part of financial planning for SMEs as over 90 percent of them agreed that having a strategy will help them plan better for future financing. 

"Out of the businesses that are planning to get financing in the near future, most of them are seeking the funding for expansion followed by working capital," the report read.

Furthermore, seven in very ten businesses that plan to get financing need additional support with linkages to financiers, followed by preparing a winning business plan in order to access financing. 

“SMEs should properly account for project financing and maintain proper financial records for financial accounting, auditing and reporting purposes to the involved stakeholders.

Small and medium-sized enterprises in Kenya continue to face harsh economic times as they strive to recover from the Covid-19 quagmire.

With little or no financial support, most have struggled to break even.

According to the Kenya National Bureau of Statistics (KNBS), about 400,000 micro, small and medium enterprises (MSMEs) have  been dying within the first year of inception, in the last five years, raising concern over sustainability of this critical sector.

Over 80 per cent of annual jobs created come from MSMEs sector which also contributes up to 33.3 per cent of GDP.

In 2021, the sector created 14.5 million jobs despite the global Covid-19, according to the Micro and Small Enterprises Authority (MSEA).

At least 15.1 million jobs had been created in 2020.