En­ter­prise

What State fund­ing for SMES should get right

Business Daily (Kenya) - - FRONT PAGE - Ajowi is a co-founder at Six De­grees Con­sul­tancy. ajow­i­juma@gmail.com

In re­sponse to the pro­posed paras­tatal re­forms, the Pres­i­den­tial Task Force five years ago sub­mit­ted its re­port to Pres­i­dent Uhuru Keny­atta. And in line with the stated ob­jec­tive of im­prov­ing man­age­ment and gov­er­nance of State cor­po­ra­tions, the task­force rec­om­mended the scrap­ping or merger of some paras­tatals.

The re­port, for in­stance, boldly rec­om­mended amal­ga­ma­tion of the Youth En­ter­prise De­vel­op­ment Fund, Uwezo Fund, Women En­ter­prise De­vel­op­ment Fund, and Mi­cro and Small En­ter­prise Au­thor­ity into one cor­po­ra­tion.

The ma­jor­ity of those who read the re­port gave it a thumps-up, ar­gu­ing that the rec­om­men­da­tions of­fered the best chance ever of align­ing the State cor­po­ra­tions to the 2010 Constitution’s as­pi­ra­tion that they should con­tribute to the achieve­ment of na­tional de­vel­op­ment goals with­out over-de­pen­dence on the Ex­che­quer.

But de­spite Mr Keny­atta’s direc­tive that the re­forms be im­ple­mented, limited progress has been wit­nessed so far.

It was, for in­stance, not un­til May 2018 that the reg­u­la­tions meant to guide the op­er­a­tional­i­sa­tion of the Bi­ashara Kenya Fund were ap­proved.

Nonethe­less, in a re­cent in­ter­view, the Pub­lic Ser­vice cabi­net Sec­re­tary Mar­garet Ko­bia gave ar­guably the clear­est sig­nal yet on the path to ex­e­cu­tion, not­ing that the Bi­ashara Kenya Fund would be im­ple­mented within six months.

The time­line may be am­bi­tious, but a step in the right di­rec­tion and Kenyans can only hope that the min­istry will re­main com­mit­ted to the stated time­lines.

Over the years, tax­pay­ers have urged the gov­ern­ment to im­ple­ment these rec­om­men­da­tions to avoid du­pli­ca­tion and over­laps in State agen­cies, with­out much suc­cess.

But on a more pos­i­tive note, the gov­ern­ment’s fo­cus on cre­at­ing an en­abling en­vi­ron­ment for the youth, women and dis­abled peo­ple to do busi­ness through pro­vi­sion of credit and ca­pac­ity build­ing pro­grammes is laud­able.

It is an open se­cret that ac­cess to credit has been dif­fi­cult since the in­tro­duc­tion of in­ter­est rates cap on bank loans in 2016.

The af­fir­ma­tive ac­tion fund has been the holy grail of en­ter­prise, es­pe­cially among the afore­men­tioned vul­ner­a­ble group, en­abling them to ac­cess credit for busi­ness de­vel­op­ment.

Quite a size­able num­ber of ben­e­fi­cia­ries of these funds have gone ahead to es­tab­lish busi­ness en­ti­ties and joined the much needed pool of mi­cro, small, medium en­ter­prises (MSMES).

How­ever, statis­tics paint a grim pic­ture as most MSMES don’t live to cel­e­brate their third birth­days. There ex­ists a high fail­ure rate among emerg­ing MSMES with most hav­ing a very low sur­vival rate within the first three years of op­er­a­tion.

This is not sus­tain­able, es­pe­cially for en­trepreneurs who bor­row to es­tab­lish busi­ness en­ti­ties.

With the es­tab­lish­ment of the Bi­ashara Kenya Fund, we have a per­fect op­por­tu­nity to in­vest in busi­ness de­vel­op­ment sup­port for the start-ups.

This would en­sure sus­tain­abil­ity of the en­ti­ties.

And with the amal­ga­ma­tion of these funds, the gov­ern­ment is able to pool re­sources to ad­e­quately pro­vide busi­ness de­vel­op­ment sup­port.

With the Trea­sury hav­ing al­lo­cated Sh2 bil­lion an­nu­ally to Bi­ashara Kenya loan­ing at con­ces­sion­ary rate of six per cent, the main ob­jec­tive of this fund should not only be to of­fer fi­nan­cial credit but to also en­sure in­vest­ment in sus­tain­able busi­nesses coun­try­wide.

This of­fers a solid busi­ness case to in­vest highly in long-term busi­ness de­vel­op­ment sup­port to en- sure that the busi­nesses ac­cess fund­ing only when they com­mit to re­ceiv­ing these ser­vices.

To up­scale the train­ing coun­try­wide, we can lever­age on Huduma Cen­tres to pro­vide a hub for the busi­ness de­vel­op­ment ser­vices.

Se­ri­ous in­vest­ment in con­tin­u­ous busi­ness de­vel­op­ment sup­port is key to the gov­ern­ment achiev­ing its ca­pac­ity build­ing ob­jec­tive.

The aim of the fund should be to in­vest in busi­nesses that will still be in ex­is­tence af­ter three years, look­ing to scale and pro­vid­ing em­ploy­ment op­por­tu­ni­ties. Achiev­ing this re­quires the in­for­mal busi­nesses to ma­ture into for­mal and pro­fes­sion­ally man­aged en­ter­prises.

The es­tab­lish­ment of this fund is a huge pol­icy achieve­ment and could be a plat­form to reach mile­stones in curb­ing the twin chal­lenge of youth unem­ploy­ment and poverty.

Ad­di­tion­ally, it could fa­cil­i­tate a plat­form to de­velop a data­base, con­duct re­search and pub­lish pub­lic re­ports on long-term MSMES per­for­mance.

Con­sid­er­ing the coun­try’s huge pub­lic debt bur­den, in­vest­ment in busi­ness de­vel­op­ment sup­port could en­sure sus­tain­able MSMES and raise their con­tri­bu­tion to the Gross Do­mes­tic Prod­uct which is a sure win for the youth and the coun­try.

Col­lapse of busi­nesses by third year not sus­tain­able for en­trepreneurs who bor­row to start up” LORNA | AU­THOR

Busi­nesses get­ting fund­ing should demon­strate abil­ity to grow and aid job cre­ation.

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