Kenyan SMEs Should Use Innovative Finance

Participants at the “Investment Opportunities in Africa and Understanding Africa Continental Free Trade Agreement” virtual symposium said that traditional bank…

Participants at the “Investment Opportunities in Africa and Understanding Africa Continental Free Trade Agreement” virtual symposium said that traditional bank products limit the potential for small businesses to reap the benefits of increased intra-Africa trade.

“Lack of collateral and the high cost of credit across different markets are some of the biggest challenges that limit access to much-needed funding by SMEs. This reduces the potential for small businesses to take advantage of AFCTA,” said Gathuo Njoroge, a trade and finance expert from Working Capital Associates.

Mr. Gathuo added products such as invoice financing that is collateral-free to enable SMEs to get access to funds without the stringent requirements needed by traditional lenders.

The African Continental Free Trade Area (AfCFTA) agreement which became effective on January 1 is meant to increase intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states.

Kenya has always thrived on the wheels of small and medium enterprises (SMEs). The sector has been and is still key in empowering people economically, facilitating financial inclusion, and enhancing daily economic activities in the country.

In a country whose unemployment rate has been rising with each passing day, the sector employs at least 86 percent of the population and provides at least 45 percent of the gross domestic product (GDP).

Even with the massive importance of the SME sector to Kenya’s economy, the sector has often been faced with a myriad of challenges that have seen millions of them give up and close shop.

Some of the most common challenges that have often hit the SME sector hard include inadequate funding in terms of credit from most financial institutions, inaccessibility to ready markets, as well as inadequate knowledge on how to sustain their businesses in presence of a pandemic such as Covid-19.