State’s plan for another SME loan facility raises eyebrows

Thursday, January 23rd, 2020 00:00 |
Economic growth. Photo/Courtesy

John Otini

Analysts are questioning the planned launch of a new small and medium-sized enterprises (SME) loan facility by the National Treasury and Industrialisation ministry after the failure of several small business loan facilities.

The two ministries are finalising a framework to allow for the establishment of a loan facility for small businesses amid concerns over duplication of efforts.

Industrialisation Principal Secretary Francis Owino has said the fund will be accessible to traders operating in Biashara Centres to be set up across the country under new trade policy which still awaits Cabinet approval.

He said the new service, which will be launched by the National Treasury, is expected to allow SMEs to access more capital and address the challenges they face when starting their businesses.

“One of the critical challenges of the SME’s sector is access to funds and some demands that equally have to be met and these are individual businesses,” said Owino during the review on the proposed changes to the MSE’s policy by stakeholders revised last in 2005.

SME policy

It is still not clear whether the fund will be managed by the government or through banks.

“We want to target micro, small and medium enterprises since there are many of them asking us for funding,” said a senior SME policy official in the Ministry of Industrialisation Mathews Nyamu.

The government last year through the Central Bank launched Stawi fund to extend loans to small businesses after the failure of Youth Fund, National Government Affirmative Action Fund. 

The funds have been plagued by poor uptake due to strict conditions and lack of collateral.

“We need to ensure that the existing facilities are efficient, However increasing the avenues of funding is not in itself a bad thing,” said Economics lecturer at the University of Nairobi Gerishon Ikiara.

Small businesses are struggling with lack of access to credit, forcing them to shut down and layoff workers as they cannot take on large procurement projects.

Analysts have vouched for introduction a single SME agency by bringing together all government institutions in this space including the Youth Development Fund, Women Development Fund, Uwezo Fund, the Micro and Small Enterprises Authority and the Kenya Industrial Estates.

The Presidential Task Force in 2013 recommended creation of Biashara Bank as a single consolidated SME agency.

“Why don’t we think of a credit guarantee system where public funds can be leveraged to unlock more money from the banking system,” said an analyst who sought anonymity saying the policy was a politically motivated issue.

The Industrialisation ministry is now focused on addressing the loopholes in its framework to better govern the industry as high cost of production, lack of diversification of products and limited access to funds have been cited as the biggest setbacks in the sector.

The new reforms are backed to ensure all Jua Kali traders specialise in mass production and manufacturing of goods that will be subject to a set of standards highlighted in the new policy framework in order to become suppliers of affordable housing programme.

Jua Kali sector currently accounts for more than 80 per cent of all businesses, creating around 75 percent of the jobs.The government is planning on introducing a new MSME fund by June this year to resolve issues of access to funds. 

Owino expects to have a session with County Executive Committee Members and the parliamentary committee to present and further discuss prospects of the new policy before getting the cabinet nod.

More on Economy and Policy