Provide SME-friendly policies for economic growth
By PD columnist, October 26, 2022Over the last couple of months, Kenyans have continuously withstood tough economic times with inflation rising to a high of 8.3 per cent on high food prices.
This is the third time the rate is outside the government’s targeted band of 2.5 per cent and 7.5 per cent.
Inflation, coupled with the ongoing drought affecting over 23 countries, the lingering impacts of Covid-19 and a contracting global economy owing to downturns in China and Russia, and further negative spillovers from the war in Ukraine, have made things tougher for everyone. Things are not all rosy and something ought to be done.
However, all is not lost, while the country’s economic growth was 7.5 per cent in 2021, the Central Bank of Kenya (CBK) has predicted a 5.5 per cent growth in 2022. According to the World Bank, Kenya is one of the bright spots in Sub-Saharan Africa.
With economic growth rates sustained at above 5 per cent, Kenya has outperformed the regional average, for eight consecutive years. This year’s expected growth is no exception despite the tough economic times, and it speaks of hope and light at the end of the tunnel.
To begin with, as economic experts and key stakeholders we need to prioritise our support to Small and Medium Enterprises to revive our economy. This, even as we remain optimistic that the inflation rate will reduce, and economic growth will remain strong in 2022.
Today, millions of SMEs cannot access capital to run a successful business due to high-risk perceptions, locking them out of business opportunities that need upfront investment. With an adverse impact on their bottom line caused by Covid among other challenges, lenders often shy away from financing their practice.
Nevertheless, we ought not to forget the contribution of SMEs. Their significance in the country’s economy cannot be ignored. They play a pivotal role in job creation and contribute upto 8 per cent to the GDP. The latest CBK data shows that SMEs currently boast a deposit portfolio of Sh577.6 billion and a loan book of Sh638.3 billion. Microfinance banks control at least five per cent or Sh33 billion of the SME portfolio while commercial banks control 95 per cent which is valued at Sh605 billion. Because of this key contribution to jobs and GDP, SMEs ought to be cautioned financially. We need them to revive the economy.
The country continues to experience steady economic growth, according to the World Bank. The government also seeks to improve on this through subsidising production, in the same vein, lenders should embrace supporting and protecting the existing 7.4 million SMEs in the country.
For starters, bankers, who are key stakeholders in enabling economic growth, can do this by offering competitive pricing, flexible collateral and improving efficiency through a quick turnaround time.
Besides, lenders also ought to diversify their portfolios and introduce financing products and services that would come in handy in reducing the risk exposure for SMEs.
In the same spirit, banks not only need to introduce alternative lending options but also be part of a social and economic movement aimed at transforming lives and empowering all Kenyans while seeking key partnerships with SMEs and like-minded institutions that support SMEs.
In addition, banks can widen their nets by giving more financing options to SMEs as exhibited by microfinance such as Faulu Bank, which has revamped its trade finance solutions to facilitate both local and international trade and commerce options for SMEs.
Key in the revamp is the introduction of unsecured limits for performance bonds and consideration of concessionary commissions for agents on a case-to-case basis. This is likely to create friendlier options for SMEs across the country to access bid bonds, Performance bonds, and Advance Payments Guarantees.
—The writer is Managing Director, Faulu Bank