How successful SMEs can fight poverty

By Winsley Masese

Kenya: A private member’s motion in the 10th Parliament brought to life a law that is expected to have a profound impact on national development.

The Micro and Small Enterprises (MSE) Act, which became law in January this year, led to the establishment of the Small and Medium Enterprises Development Authority.

The Act’s enactment marked the first time in Kenya’s history that the sector, which is the biggest employer, was placed under a regulatory authority.

With this legislation, the Government has sharpened its focus on micro and small enterprises to create an enabling environment for them to thrive.

In turn, they are expected to contribute to the country’s long-term development strategy by helping alleviate poverty and creating wealth.

Through harmonised policies, SMEs are being brought into the mainstream economy to create more jobs and make a greater contribution to national income.

But what does it take for a small enterprise to succeed?

This question was the focus of a recent study conducted by researchers from KCA University, Makerere University Business School and Pipal Ltd, a consulting firm in Nairobi.

The findings of the study, which focused on relatively more successful enterprises in Kenya and Uganda, have implications for policy. This is according to Dr Renson Muchiri, KCA University’s dean of the School of Graduate Studies and Research.

While the research noted commendable efforts in promoting the survival and sustainability of small and medium enterprises by both governments, its findings indicate there is more to be done.

A key finding from the research was the need for SMEs to join business networks, which were found to be instrumental in reaching out to new customers and suppliers, reducing transaction costs and disseminating information.

A notable implication was the need for the Government to support the establishment of well-regulated networks for micro, small and medium enterprises (MSMEs).

Another recurrent theme in the study was the need to make wise recruitment decisions.

Too many entrepreneurs hire relatives as employees in the hope that the blood relation will make them more trustworthy and better managers of the business.

However, narrations from successful entrepreneurs in the study indicated that this is far from what happens. In a majority of cases, relatives engage in pilferage and mismanagement, which undermines business success.

Dr Muchiri recommended that the Government consider setting up MSME helpdesk centres across the 47 counties to help entrepreneurs avoid the “trap of relatives”.

These centres would also assist with SME registration, provide licensing services, arbitrate in contract and business disputes, provide information on venture opportunities in both public and private sectors, and create a database of job seekers.

“Additionally, the sector agency should collaborate with training institutions, consulting agencies and established business associations to provide training programmes, incubation and mentorship,” he said.