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January 21, 2019

Lack of credit information headache for startups, SMEs

A shoeshiner serves a client at Kencom in Nairobi on August 20 /ENOS TECHE
A shoeshiner serves a client at Kencom in Nairobi on August 20 /ENOS TECHE

Lorraine Mwende plies her trade, shoe polishing, along Haile Selassie Avenue in Nairobi and has been in the business for two years now.

She polishes shoes at a cost of between Sh50 to Sh200 per pair and could serve close to 15 people in a day.

“If I need to add shoe polish brushes and creams, I borrow from the mobile money services and the most I can get is Sh3,000,” Mwende said.

Mwende is one of the few Micro-, Small- and Medium- Enterprises aspiring to boost their small business revenues and grow but are unaware of alternative sources of financing.

They also fall short in their knowledge about credit agreements.

Manufacturing Academy manager Catherine Mukoko said credit and lack of capital is one of the greatest problems for start-ups and SMEs, mainly because they have no solid business plan.

“Most SMEs don’t access money because they have no clear way of spending it. We are ensuring they are trained on writing business plans and creating financial structures on how they use the money and also on financial accountability,” Mukoko said.

Mukoko said the Kenya Association of Manufacturers holds talks once every two months with SMEs and this has brought financial institutions on board to provide information and structured products.

State investment institutions such as Industrial and Commercial Development Corporation (ICDC) and Kenya Industrial Estates (KIE) are expected to facilitate development and offer incubation services to increase competitiveness in the industry.

SME East Africa director Muthoni Ngatia said corporations will be riding on the Sh400 billion budget set for Big Four agenda to help the enterprises have an impact in investing and realise opportunities, especially around food and manufacturing economic pillars.

Under KIE, Mwende would get a minimum of Sh10,000 under group guarantee approach or Sh100,000 under individual enterprise approach, with a repayment period of a maximum of seven years after a business appraisal to determine what she can pay.

This is charged at 10 per cent interest rate annually on reducing balance. She would also get a working space at Sh40 per square foot, below market rates of between Sh100 to Sh500.

KIE managing director Parmain ole Narikae said the corporation brings intervention through business advisory services, incubation and management skills focusing on indigenous enterprises to enable survival and growth.

“We conduct financial projections of what the business would make and appraisal to prepare a business plan to give a loan that the borrower will afford and pay without any strain,” Narikae said. Narikae said they have been able to disburse loans worth Sh1 billion in the last four years.

“There are many business people working very hard but they really don’t know where to plug in and avenues of finance to grow into large firms. These enterprises need to leverage on the capital that has been known even by foreign enterprises to expand their operations,” Ngatia said.

Akam Wear Limited in Umoja is leveraging on the state run Leather Development Corporation to produce 50 pieces of leather shoes, up from 20 pieces a day after receiving Sh200,000 loan in 2013 and another Sh1 million in 2014. The business has grown from three to 30 employees.

University of Nairobi, Kenya Private Sector Alliance, Ministry of Industry, Trade and Cooperatives and KAM have also partnered to provide short courses on entrepreneurship under the School of Business and bridge gap on knowledge and skills.

“Many entrepreneurs are getting into business but are not doing it professionally. The courses will provide SMEs with case studies and best practice to help them on their operations, ” UoN School of Business dean Mary Kinoti said.

National Treasury is also working on a credit guarantee scheme for SMEs to unlock finances to enable to sector grow to large firms.

Industries assistant director Matthew Nyamu has said the framework will provide loans for SMEs without any collateral and in the event the entrepreneur fails to pay, the government will take care for it.

Nyamu has also said that the strategy will encourage sub-contracting with the larger firms to ensure technology transfer and promote market access.

“We need to promote Buy Kenya Build Kenya programme by encouraging production and procurement of locally made goods,” Nyamu said during the launch of SME Fest 2018.

Of 1,000 membership in KAM, 40 per cent are businesses in the SME category.

A National Economic Survey 2017 report by the Central Bank of Kenya (CBK) indicates that SMEs create 30 percent of the jobs annually as well as contribute three per cent of the GDP.

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