Each year, thousands of ambitious Kenyan entrepreneurs start new businesses, but by the end of four years, more than half of them fail, mainly because of limited access to funding and a cumbersome regulatory and working environment.
The 2019/20 budget read yesterday by Treasury Cabinet Secretary Henry Rotich is set to breath new life to thousands of small businesses on the verge of collapse. By removing the capping on loans, Small and Medium Enterprises (SMEs) owners can now rest easy that their businesses will not be among the growing statistics of businesses that collapse.
The aim of the interest rate capping was to reduce the cost of borrowing, increase access to credit and higher return on savings, but this has not been achieved. The law, which has been in effect for almost three years now, had serious effects on economic growth as it meant many SMEs could not access loans, based on their perceived high risk of default.
However, reforms must be put in place to protect consumers from profit hungry banks and optimise lending to the private sector. The proposal by the CS to repeal Section 33 billion of the Banking (Amendment) Act, 2016 in this year’s Finance Bill promises to unlock credit to the private sector and in particular to the SMEs, which play a critical role in wealth and employment creation. This will, no doubt, spur business activities and growth of the manufacturing sector for revenue and job creation.
Further, the proposal by the CS to launch an “SME Credit Guarantee Scheme” is great news to small business owners. This will not only deepen access to credit but also reduce complex loan application procedures.
The proposed amendments to the Competition Act to empower the Authority to deal with abuse of buyer power and ensure prompt payment to suppliers is also a win for SMEs. It is unacceptable for the government to continue delaying payment for services and goods.
Reports show Sh32.5 billion was yet to be paid by government to local traders as of last year. However, the CS said yesterday the government has prioritised Sh10.9 billion of the verified pending bills for payment by end of June. This money is owed to the youth, women and persons living with disability.
SMEs are the biggest employer in Kenya and by ensuring that suppliers are paid within 60 days, the CS will be protect the small business owners and jobs.
County governments must take cue from this.