Kenyan SMEs miss out on Covid bailout funds – report

Kenya has channeled a mere one per cent of Covid related bailout funds to SMEs, a survey indicates, this despite having a credit guarantee scheme and on lending funds by banks.

The informal private sector has on the other hand received no financial support from the government according to the report by the Financial Transparency Coalition (FTC) and partners.

Social protection has benefited from a paltry seven per cent of bail out funds with the majority of the funds (92 per cent) going towards major corporates (corporate stimulus).

The findings are from an analysis of the pandemic’s public bailout funds dubbed ‘Towards a People’s Recovery: Tracking Fiscal and Social Protection Responses to Covid-19 in the Global South.’

FTC is a group that brings together civil society and governments around the world to stem illicit financial flows that are costing developing countries nearly a trillion dollars each year.

Its survey analysed data from Kenya, South Africa, Sierra Leone, Bangladesh, India, Nepal, Honduras, Guatemala, and El Salvador.

The Kenyan aspect of the survey included measures to cushion households and corporates from the impact of the pandemic, which made Kenya’s corporate tax rate the lowest in East Africa, fuelling tax competition.

In the countries surveyed, only two per cent of funds went to support workers in the informal sector, even though they often make most of the workforce.

It found that 63 per cent of Covid-19 relief funds went, on average, to big businesses in eight of the nine surveyed countries, while only a quarter of the funds went to social protection, all in lack of transparency and accountability.

According to Chenai Mukumba, Policy Research and Advocacy Manager at Tax Justice Network Africa (TJNA), most countries in the Global South were able to determine where to direct their public Covid-19 bailout funds.

“There are a whole host of reasons, however, why they did not direct resources to social services, and these ranged from the inadequate capacity of governments to identify vulnerable populations in their respective countries to lobbying by the private sector for policy change in their favour,” Mukumba said.

In Kenya, for instance, the World Bank provided $50 million (Sh5.4billion) in immediate funding to support the country’s emergency response, which is now unaccounted for according to the report.

This opacity is partly due to most international monitoring systems looking at initial funding announcements rather than tracking the actual disbursement of funds, it says.

Last year, the National Treasury and local lenders opened a credit line to bail out small businesses affected by Covid-19.

In the small and medium enterprises ‘credit guarantee scheme’, the government is to insure part of risks undertaken by commercial banks in advancing loans to SMEs.

According to National Treasury Cabinet Secretary Ukur Yatani, the disruption caused by the virus deeply affected small businesses that would unlikely attract affordable and quality credit under the traditional arrangements.

“This is in line with best practice in other regions where credit guarantee schemes have been used successfully to improve access to credit by MSMEs,'' Yatani said in a recent briefing. 

In December last year, the government had set aside Sh3 billion as seed capital for the creation of the SME scheme with additional financing, which presently stands in excess of Sh20 billion, coming from partner financial institutions and development partners.

It includes €100 million (Sh13.1 billion) committed by the European.

The operation of the scheme is guided by the Public Finance (Amendment) (No.2) Act, 2020 which hands the power to the Cabinet Secretary of the National Treasury to oversight the fund’s day-to-day operations.

Only enterprises that fall under the SME definition as given under the Act stand to qualify for the guarantees.

Firms accessing the guarantees are capped under the definition of medium enterprises which refers to businesses employing between 50 and 250 persons and a turnover not exceeding Sh150 million.

Such programmes have worked out well in Europe and Asia, seeing businesses through tough economic times such as the 2008 financial crisis which saw fewer businesses started, many businesses laid off employees or closed outright and commercial lending drastically decreased during the time.

Last year, the Central Bank of Kenya (CBK) had warned that at least 75 of small and medium businesses risked closure due to lack of funds in the pandemic.

This translates to close to eight businesses out of every 10, a situation the CBK governor Patrick Njoroge described as dire, and required quick interventions for a sector that accounts for 70 per cent of new jobs in the country.

''Those businesses are on rocks and would be in a critical state by the end of June. They are in need of an urgent rescue plan,’’ Njoroge had said in a post-Monetary Policy Committee briefing.

He said any intervention needs to go beyond finance, into ‘finance plus’, including linkages to other markets.

A survey by the United Nations Capital Development Fund (UNCDF) and the International Chamber of Commerce (ICC) had further warned that about 33.9 per cent of SMEs would have closed by December, as businesses continue to suffer the brunt of Covid-19.

This was amid little or no support from governments, according to the survey with only about 47.5 per cent reporting having received some type of government support.

About 58.5 per cent said they were not aware of any government support.

Access to customers and suppliers are reported as major challenges for SMEs.

For those that have received government support, the relief is mainly on subsidies with about 87.9 per cent operating on less than 75 per cent business capacity.

The main sectors represented in the survey were hotel and catering, textile and craft and industrials.