How Banks are killing Small Medium Enterprises in Kenya

By / Published July 27, 2015 | 4:06 pm



entrepreneurship-COVID

Small Medium Enterprises and young entrepreneurs face unique challenges in the course of their operations. They lack capital to invest in their business. They also do not have adequate knowledge concerning the world of business.

These challenges affect majority of them to the extent that they end up giving up on their ambitions. The greatest challenge however, comes from the banks.

It is difficult for Small Medium Enterprises to get loans from banks in Kenya.  Most of these Small Medium Enterprises are required to be profitable or backed by venture capital for them to be considered for loans.

Applicants are also needed by the banks to meet some collateral demands for security which are unachievable for most SMEs – in most cases these securities are cash or other forms of marketable securities that upcoming Small Medium Enterprises lack.

To a Small Medium Enterprise, this is a major challenge because they have to seek loans to start their business and asking them to meet the demand of having a profitable enterprise is unfair and it kills their ambitions.

Banks in Kenya also want to see financial records of Small Medium Enterprise as proof that one is capable of repaying back the loan. Small Medium Enterprises that are just starting hence they have no such records again locking them out.

The processes to be followed to convince banks to lend out money to SMEs are tedious, causing them to give up along the way. Some banks give a limit of monthly income as the first step to start processing for a loan which quite frankly might not be available for someone just starting out in business.

The fact is that banks lend as much money as what one is currently worth. Most SMEs and entrepreneurs are youngsters who are just starting up in life and are not worth much. Giving them a monetary limit as the benchmark for qualifying to get a loan locks most of them out.

There is lack of awareness among Small Medium Enterprises regarding the loans that are offered by various banks. Most SMEs have no idea what loans are all about and what it takes to secure a loan. This is contributed by the fact that most of those who engage in the SME sector are the chaff from the academic crème de la crème. Their literacy level on financial matters is low if any at all.

The cost of credit is very high and this scares away most SMEs especially those who honestly cannot afford the mentioned rates. The business is just starting and there is not much return from it so high cost of credit discourage people from starting Small Medium Enterprises.

The grace period that is usually given by banks before starting to service the loan is quite limited. Some banks do not give any grace period at all and require one to start paying back the loan as soon as he or she gets it. Banks are indeed killing small and medium enterprises in Kenya.







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