6 Factors that Hinder the Growth of SMEs in Kenya

Small and medium-sized enterprises  (SMEs) play an important role in most economies worldwide.

Compared to larger firms they are more flexible and faster at responding and adapting to change. SMEs’ survival is easily threatened due to their smaller set of both financial and non-financial resources.

There are many risks SMEs go through, here are a few,

High-interest rates

SMEs are very dependent on external finance such as loans which is usually the main source of financing available. This involves the risk that interest rates on the loans may change, Low interest rates facilitate access to capital and thus resources required for entrepreneurship.

E-business and technological risks

SMEs are exposed to a variety of online threats, such as identity theft, credit card fraud, e-mail abuse and cyber-attacks. Online safety is a major problem when it comes to E-business.

It can be difficult for an SME to rebuild its online reputation after a security-related incident because of its limited resources. Another thing is that technological changes are unavoidable. Given the rapid changes brought about by technologies, the rules of competition have changed knowledge and speed are the key factors of success to a good business.

Supply chain risk

SMEs must offer a wide range of products to meet their customers’ needs and demands. However, this creates higher dependence of the SMEs on their supply chains due to increased complexity.

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Management and employees risk

Every business is exposed to loss of knowledge when experienced employees with valuable information, knowledge, and contacts leave the organization. SME owners seem to be somewhat reluctant to invest in knowledge-building activities which might help to lessen such knowledge risks.

Competition

Competition in the region and around the world is expected to intensify. Companies are no longer restrained by physical boundaries. Countries have to compete to attract investments, not only creating a perfect business environment, but also by developing policies to entice the best talents to their countries. Knowing what is going on in the market or knowing where to find out any solution is beyond many small businesses.

Taxation

If tax rates are high they reduce the profit incentive drastically and corporate tax is among the highest in the world. The complexity of the tax system further raises the cost of doing business, as many SMEs do not have the capacity to administer tax returns and thus need to consult experts for a fee in order to meet these legal requirement.

The economic impact of COVID-19 has only exacerbated the strain on SMEs, particularly in Kenya. These businesses cannot easily access long-term financial options. This, alongside the above-mentioned challenges, need to be addressed if SMEs are to have a positive outlook.