KANEPS: Significance of financial literacy in nurturing sustainable SMEs

Self-employment can be a rewarding path to economic independence, particularly for the young, unemployed population, despite the inherent challenges.

According to a 2019 survey by Statista, a global data and business intelligence platform based in Germany, Kenya accounted for slightly more than 49 per cent of the total self-employed individuals in Africa.

Neighbouring countries like Uganda and Tanzania boasted even higher percentages, with 77 and 83 per cent, respectively.

While these statistics may have shifted during significant global events like COVID-19, one constant challenge remains: maintaining newly established small businesses due to poor financial skills.

This situation is exacerbated by difficulties faced while trying to access credit, especially through traditional banking channels.

In response to this predicament, new business models have emerged, offering microfinancing at flexible repayment on daily, weekly and monthly terms.

Some models even enable entrepreneurs to obtain financing for assets, like motorcycles, which then serve as collateral for the loan.

This new credit system has given rise to relatively new business models, such as lease-to-own and pay-as-you-go, gaining popularity among young entrepreneurs with limited capital to start their businesses.

Drawing from my experience at the helm of one of Africa’s largest asset financing companies over the past eight years, I have learnt lessons about responsible borrowing that I wish more entrepreneurs would know.

This is especially important when these businesses borrow money to start or sustain their ventures while supporting their families and servicing their debt.

Those traditionally underserved by the formal banking system have found an avenue to financing through microfinanciers, asset financing companies and fintech institutions that provide small loans with greater flexibility, helping small businesses thrive during uncertain times.

According to the World Bank, this approach enhances financial inclusion for millions of individuals and small businesses with limited offers of financial assets, products and services.

It not only gives them a viable source of livelihood through credit, savings and insurance services but ensures they are delivered sustainably.

In Kenya, commendable progress in financial inclusion rates, as demonstrated by the 2021 FinAccess Household Survey commissioned by the Central Bank of Kenya and the Kenya National Bureau of Statistics, continues to be achieved due to these new financing models.

The writer is the Founder and CEO of Watu Credit Limited (Watu)