MSMEs need more financing solutions beyond credit

Micro, small, and medium enterprises (MSMEs) are the backbone of Kenya’s economy, contributing significantly to innovation and economic growth.

MSMEs account for 33.8 percent of the national output, data from the 2022 Kenya National Bureau of Statistics (KNBS) Economic Survey 2022 shows. They are pivotal in realising Vision 2030 development aspirations, particularly in trade, manufacturing, agriculture, tourism, and financial services.

These firms account for over 90 percent of private-sector enterprises in Kenya, playing a crucial role in the decentralised economic development model promoted by devolution that aims to achieve equitable social and economic development across the country.

As we marked World MSME Day on June 27, the significance of these enterprises was highlighted. Despite their critical role in economic growth and job creation, MSMEs face significant challenges, including high rates of business closure within the first year of operation. To address these challenges and ensure sustainable growth, there is a pressing need for digital and innovative financial products and services beyond traditional credit offerings. These solutions can provide MSMEs with the tools and resources necessary to thrive in an increasingly digital economy.

MSMEs are essential for economic development, providing job opportunities and contributing to poverty alleviation and inclusive growth. Sustainable Development Goal 8 underscores the importance of MSMEs in creating decent work and economic growth.

The government’s economic transformation initiative further highlights the potential of MSMEs to generate employment and livelihood opportunities, especially for marginalised groups.

However, despite the introduction of favourable policies over the years, a significant proportion of MSMEs continue to face financial constraints, limiting their ability to thrive and expand.

I&M Bank’s initiatives to support MSMEs through flexible working capital solutions illustrate the need for financial products that go beyond traditional credit. These include waiving transaction fees for transfers between bank accounts and mobile wallets, demonstrating the potential of digital payments to reduce operational costs and deepen financial inclusion.

This integration allows MSMEs to conduct seamless financial transactions, enhancing their operational efficiency and reducing the cost of doing business. These solutions, among others, help MSMEs manage cash flows and invest in the supply chain, enhancing their operational efficiency and scalability. By offering business insurance products and supply chain financing, banks can provide comprehensive financial support that addresses various aspects of business operations.

The introduction of unsecured digital lending products by banks in recent years has revolutionised access to finance for MSMEs. These products, accessible via mobile apps, offer faster and more efficient loan application and renewal processes, enabling businesses to access funds quickly and conveniently. Such innovations are crucial in a digital era where speed and accessibility can significantly impact business success.

The Covid-19 pandemic highlighted the vulnerability of MSMEs to external shocks. Digital insurance products and risk management solutions can provide a safety net for these businesses, protecting them from unforeseen events and ensuring business continuity. These products are particularly beneficial for women and youth entrepreneurs who may face additional challenges in accessing traditional financial services.

The integration of mobile money platforms with banking systems is one collaborative effort that has revolutionised financial transactions in Kenya, providing MSMEs with greater flexibility and accessibility.

As we move towards a more digital and data-driven financial landscape, it is crucial to continue developing and implementing financial solutions that cater to the diverse needs of MSMEs.

— The writer is the Head of Small Business at I&M Bank