How European Investments Bank Supports SMEs In Kenya

Kenya thrives on the wheels of Small and Medium Enterprises (SMEs). About 90 percent of businesses in Kenya are SMEs that employ about 86 percent of the population and contribute about 45 percent to Kenya’s gross domestic product (GDP).

Even though SMEs are the backbone of Kenya’s economy, they still face a myriad of challenges that have brought millions of them to their knees. Stats from the Kenya National Bureau of Statistics (KNBS) indicated that at least 450,000 SMEs close in Kenya annually translating to 30,000 a month and 1,000 daily on average.

One of the challenges faced by SMEs in Kenya is the inability to access credit from commercial banks. This is because most banks in Kenya require SMEs to give them security before acquiring a loan. Most SMEs do not have security that they can deposit with a bank as collateral and in some cases, the cost of credit can be very high.

Another challenge is the high cost of doing business in Kenya. This, coupled with higher taxes has made it almost impossible for businesses to operate and remain afloat. Many of them have had to shut down operations as a result, never to resume again.

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The coming of Covid-19 pandemic dealt a major blow to a great many SMEs in Kenya. Millions of people lost their jobs and many businesses were shut down as they failed to adapt to the fast-changing times that had been necessitated by the pandemic.

To help SMEs in Kenya survive, the European International Bank (EIB), which is the European Union Bank, partnered with local banks in Kenya through an intermediated lending framework. This included working with banks that are popular with SMEs such as Co-operative Bank and Equity Bank. Since these banks know their customers well and have worked with them for many years, they were better placed to organize loan allocation and careful investment.

Intermediated lending means a local bank, or other financial institution, takes out a loan from a larger institution like the EIB and then lends this money to small businesses in its area of operation. The credit lines are targeted at the EU’s priority areas of intervention in a particular country, to maximize their impact. In certain operations, the EIB blends the credit lines with EU grants to develop affordable financing solutions and technical assistance for the final beneficiaries and partner banks. This helps ensure that businesses can be sustainable in the long term.

“Access to finance is crucial for MSMEs to support their growth and in difficult times even to sustain their business,” said Edward Claessen, Head of EIB Regional Hub for Eastern Africa. “The loans that are provided have enabled local banks to pass on favorable terms including longer tenures and affordable interest rates to the MSMEs here. They must sustain their business, to grow their business, and to create sustainable jobs.”

Ronald Omwenga runs a flower pot shop. His shop was among the few businesses that boomed during the Covid-19 pandemic. Given that many people had more free time, the majority beautified their homes and planted flowers.

“During Covid and even after, people had time to do some planting of flowers and the rest. We had to look for a financial partner to enable us to meet the demands of the market in terms of these flower pots,” said Mr. Ronald Omwenga, the CEO of The Pot Shop. His business received EIB financing support through Co-operative Bank.

Another beneficiary was Dr. Anthony Kinyanjui, the Medical Officer in charge of Equity Afia, Donholm. He was one of the entrepreneurs who benefited from affordable capital injection from the European Investment Bank through its partnership with Equity Bank. Through the finances he received, he increased the network of his clinics and employed more people.

“Some of the obstacles that we have been encountering is access to capital. Equity Bank has been able to educate us on different options that are there for financing our business. When the opportunity to benefit from the EIB facility came, it came in handy. So we have been able to expand to every estate in Eastlands,” Dr. Kinyanjui said.

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