Absa SME Solutions: Addressing the Challenges Facing SMEs in Kenya

Small and Medium-sized Enterprises (SMEs) form an integral part of the Kenyan economy. About 86 percent of annual jobs are created in the sector.

Moreover, it contributes about 45.5 percent to the country’s gross domestic product (GDP) and is considered one of the cornerstones of the country’s development.

Despite this fact, SMEs in the country face many challenges. For a long time, the government has come up with policies meant to favor the sector, but the implementation of these policies has not been reflected at the ground level.

From small market sizes and low levels of regional integration to limited access to credit and lack of managerial skills due to lack of training, the SME sector is faced with a myriad of challenges that need to be addressed as soon as possible.

Some of the significant challenges facing the SME sector in Kenya include;

1. High Tax Regimes

High business taxation negatively affects entrepreneurship and business investment as a whole.

The higher the tax rate, the more capital is taken out of the hands of the entrepreneur and into the hands of the government. Therefore, higher tax rates leave entrepreneurs with less money to reinvest and expand their businesses.

A more straightforward and more favorable tax regime would be more beneficial to the businesses in the SME sector.

2. Too many laws and regulations

In Kenya, there are so many laws regulating the operations of small businesses. As much as some of these laws are good for the business, others curtail their operations and growth.

For instance, to start a food business in the country, you will need several licenses, such as a trading license, a fire clearance certificate, an advertising signage license, a health certificate, and a food hygiene license.

These multiple licenses are, however, not only expensive but acquiring them is time-consuming. If the law only required one permit, that’s cheap and time effective to secure, more SMEs would be set up daily.

3. Inadequate Managerial Training

Most entrepreneurs lack the skills to manage their businesses. They just set up the company and try to wing it by learning and unlearning along the way. This method does not always result in good operations. Most of the time, it leads to failure and loss of resources.

In addition, these entrepreneurs cannot employ qualified staff to carry out management responsibilities due to tight budgets. This means they will be running out of business themselves without the needed skills.

4. Slow Adoption of Technology

Digitization has become part and parcel of entrepreneurship in the country. Therefore, any business aspiring to stay on top of the ladder must acquire technology.

An excellent example of innovative technology is mobile payments. However, years after the introduction of the product in the country, many SMEs are yet to adopt it.

Although the Covid-19 pandemic might have pushed some to use it, others are still far from accepting technology.

One reason entrepreneurs give for their lack of up-to-date technology is that technology is evolving at high speed and that better products are introduced in the market every day. Therefore, some SME owners are left to speculate whether to embrace what is available now or wait for the next big thing.

Others also claim that the costs of new technology are always high; hence cannot afford to use them.

5. Inadequate Access to Credit

Access to finance is a crucial constraint to SME growth; it is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries such as Kenya.

One of the reasons why SMEs cannot access cheap loans to scale up their businesses is that most commercial banks ask for tangible collateral before giving out loans. Most entrepreneurs lack the fixed assets they can pledge as security for loan applications.

Moreover, most SMEs prefer to do their transactions using cash rather than the bank. They cannot access credit from the bank whenever the need arises because they have not built recognition and have no relationships with banks.

Also, the loan processing in some financial institutions may be pretty complicated and lengthy, especially for borrowers requiring small loan amounts.

Entrepreneurs need mentorship programs to learn about management and sound financial planning to avoid bad loans affecting their prospects. Moreover, financial institutions must develop affordable loans for entrepreneurs and simple procedures when acquiring the same.

Related Content: How Absa Bank Is Helping MSMEs Rebuild And Recover Post-Covid

Absa Kenya’s Intervention

Eliminating all the challenges SMEs face cannot happen overnight, which is why Absa Bank Kenya’s approach has endeavored to help them navigate the most pertinent issues.

Absa Bank Kenya is at the forefront of championing and enhancing the growth and success of both MSMEs and SMEs in Kenya. It provides innovative solutions and interventions to ensure they meet their urgent need for growth and sustainability.

The interventions are offered through practical tools, training, and coaching – aimed at helping both early-stage and established SMEs across Kenya thrive.

For instance, in 2021, Absa Kenya launched the SHE Stars program to offer business skills to female entrepreneurs running small enterprises. Absa aimed to address business gaps and training needs that women entrepreneurs face through the program.

It further launched the She Business Account, allowing women-owned businesses to access funds through banking products such as unsecured and secured loans, trade finance, asset finance, property finance, and working capital facilities.

The She Business Account enables women to access unsecured lending of up to 10 million shillings, payable over 5 years for existing borrowers and 7 million for new borrowers payable in 4 years.

Beyond the robust support for women-led SMEs, Absa Bank also allows any small business owner to access unsecured business loans of up to 10 million shillings payable in 72 months through a product called Wezesha Biashara.

The product also offers 95 percent asset-based financing and working capital financing. Entrepreneurs also get LPO Financing and Invoice Discounting of up to 50 million shillings and unsecured bid bonds of up to 10 million.

These Absa Kenya interventions are geared toward creating a robust SME ecosystem in Kenya. The bank is committed to helping entrepreneurs gain the necessary skills, grasp the aspects of running a profitable business, gain access to credit, and thrive.

Related Content: Ways in which MSMEs Can Access Credit, Mentorship and Training Through Absa