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Harnessing the power of SMEs to propel economic growth

21st Sep, 2017

Starting a successful business is no mean feat. Right from coming up with an idea and turning it into a profitable company can be taxing even for a seasoned entrepreneur. It is much harder for someone who is starting out. This is because the journey to success is fraught with challenges. However, knowing and anticipating the roadblocks you may encounter in your start-up journey could help you prepare, avoid common pitfalls and eventually break even.

Everybody talks about the role small businesses play in jobs creation, distribution of wealth and in growing economies. In Kenya, SMEs provide employment to approximately 80% of the population. However small businesses face a unique set of challenges. According to Deloitte Kenya Economic Outlook 2016, the growth of SMEs is hindered by low funding levels, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology. As a result, most of the small businesses meet their death before they are five years old.

Many small and medium enterprises do not have access to finance and credit especially from financial institutions because of the rigorous conditions given to them by these institutions. These enterprises are not in a position to provide collateral such as immovable assets due to their small asset base.  As such, they are left to rely on their own limited resources, borrow from friends and relatives or resort to expensive sources of funds.

Unfortunately, these modes of funding are not viable for the long-term.

According to the Economic Survey 2017, 57.2 % of the licensed micro establishments required a startup capital of KShs. 50,000 or less. This accounted for 94.5 % of the total establishments. Licensed establishments which required above KShs. 1million as a startup capital were mainly small and medium sized.

Furthermore, 71.9% and 80.6 % of licensed and unlicensed establishments reported family or own funds as the main source of start-up capital, respectively. Loans from family and friends accounted for 4.2 % of the capital sources for both licensed and unlicensed small and medium enterprises. From the survey, it is clear that banks only financed 5.6 per cent of licensed small businesses.

It is in recognition of the potential that lies in these small and medium enterprises and the challenges that they face, that KCB Bank has taken the initiative to create an avenue for start-ups and young entrepreneurs; they pitch their ideas to a panel of established entrepreneurs and venture capitalists in what we call KCB Lions’ Den.

KCB Lions’ Den, now in its second season—which will start airing on September 5— looks forward to seeing Kenya’s most daring entrepreneurs get the opportunity to step into the ‘den’ to convince the Lions that their business is worth investing in and in return, offer a share of their company. From the first season, it is evident that there are some great ideas out there which have potential to grow into profitable business ventures. For business owners who overcome the initial funding hiccups and other related challenges, they move on to the next phase of growing their brand. At this stage, it is advisable to follow a well-planned strategy and be mindful of budgets.

The foundation of any strong economy, depends on the continuous empowerment of SMEs and young entrepreneurs. Policy initiates in revitalizing the SME sub-sector should not be only government engineered, but all the stakeholders in development arena should take frontline. They should consider young people and SMEs, central to the stability of the economy. Millions of future entrepreneurs need to be nurtured so that the world at large can benefit.

If Kenya wants a strong economy and a great future, there are key points that require appropriate attention including financial rescue package to address SME funding issues, equipping entrepreneurs with technical and business skills, friendly investment climate and above all, implementation of sound SMEs policies. Policies should aim to encourage and promote the development of local technologies. Emphasis should be on the promotion of the local tool industry to reduce reliance on imports. Also, a networking strategy can improve SMEs’ position. When organized in networks or when they operate through professional organizations, SMEs can reap benefits on multiple levels.

However, this is not all that there is to change the SME sector. It is a process that require critical measures being undertaken by all the sectors of development, not just the financial sector. This is a must for realization of an integral growth in the sub-sector.

They say, the only way that we can live, is if we grow. The only way that we can grow is if we change. The only way that we can change is if we learn. The only way we can learn is if we are exposed. And the only way that we can become exposed is if we throw ourselves out into the open. Do it. Throw yourself.

Article first appeared on the Business Daily. 

By: Angela Mwirigi

The Writer is the KCB Director of Marketing and Communications.

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