Report: SMEs must innovate to access finance

By Macharia Kamau

Kenya: Access to finance remains the biggest headache for small and medium-sized enterprises in Kenya, especially those just starting out.

A new report by the Aspen Network of Development Entrepreneurs (ANDE) — an organisation working with entrepreneurs in developing and emerging markets — however, notes that limited innovation among SMEs has kept financiers away.

“Enterprises at (the start-up) stage have not yet proven their business model and are pre-revenue or cash-flow negative, presenting a higher risk for potential investors,” notes the ANDE Impact Report.

“At the same time, many fund managers targeting growth-stage Small and Growing Businesses (SGBs) find a small pool of investable enterprises and a crowded group of funds seeking to place capital.”

Further, the small nature of many businesses makes it difficult for entrepreneurs to access finance.

“Seed and start-up stage enterprises usually looking for $20,000 to $100,000 (Sh2 million to Sh8.4 million) of flexible capital struggle to find funds that will invest.”

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Other challenges identified by small business owners include access to markets, high tax regimes, high cost of electricity and political instability. 

The report also found that Nigerian entrepreneurs identified infrastructure as their biggest challenge, while South Africans cited both human capital and access to finance.

In doing their research, the Aspen Network brought together 55 organisations in Nairobi for a workshop on early stage incubation of social enterprises in East Africa.

“Broadly, the group found three main areas of focus: developing talent, making information and resources more accessible to entrepreneurs (and) supporting accelerators to improve their services to entrepreneurs.”

ANDE, however, notes the growing recognition that SMEs are key to economic growth has increased the financing options available to them.

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Aspen Network of Development Entrepreneurs SMEs economic growth