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Hope for SME finance in Ruto's new ministry

President William Ruto during the opening of the 13th Parliament, Nairobi on September 29, 2022. [Elvis Ogina, Standard]

President William Ruto rose to power on the promise of empowering small businesses through a Hustler Fund.

His government now has commissioned a new ministry mandated with ensuring a conducive working environment for small and medium-sized enterprises (SMEs).

A lot awaits the new Ministry of Co-operatives and SMEs, with Simon Chelugui picked as Cabinet Secretary.

The government made a commitment to spend Sh250 billion to transform the micro, small and medium enterprises (MSMEs) economy by end of the 2025-26 financial year.

President Ruto’s government has also committed Sh50 billion each year to provide MSMEs with access to affordable finance through Saccos, venture capital, equity funds and long-term debt for start-ups.

In its manifesto, the Kenya Kwanza Coalition projected that if SMEs were all productive, then the economy would be 60 per cent larger.

“Our estimates show that if these workers were as productive as those in established SMEs, they would be generating Sh6 trillion a year, which is 60 per cent of GDP,” part of the manifesto read. SMEs play a critical role in the economy, but are perennially faced with the challenge of access to finance.

Statistics from FSD Kenya show that SMEs account for 24 per cent of the country’s gross domestic product (GDP), over 90 per cent of private sector enterprises in various sectors and 93 per cent of the total labour force in the economy.

According to data from Kenya National Bureau of Statistics (KNBS), majority of SMEs die before their second birthday due to lack of access to affordable credit.

Other challenges include multiple fees, levies and taxes.

Mr Chelugui is expected to lead in reviewing and rationalising all business licences as promised by the President.

“We will review and rationalise all business licences, cap total licences at 1.5 per cent of turnover and enact administrative burden law, ensuring no business spends more than four person hours a month on tax and regulatory compliance,” the manifesto said concerning regressive taxation, bureaucracy and regulatory compliance costs.

The CS is also expected to address the issue of Saccos facing liquidity and supervision challenges in line with the government’s commitment to finance SMEs through saccos.

The new ministry is also mandated to ensure that there is an MSME business development centre in every ward.

Below living wage

According to 2016 data by KNBS, workers in the formal MSMEs sector were 15 times more productive, as licensed MSMEs generated an operating surplus of Sh50,000 an employee per month.

The KNBS data further showed an estimated 10 million informal MSMEs generated less than Sh5,000 a month each, which was below the living wage for one person.

These small enterprises are key drivers of the economy despite the many challenges they face, thus the Sh250 billion promise in the President’s job creation agenda.

The Hustler Fund is targeted to give loans to small businesses that are not likely to get credit from commercial banks as lenders put a higher risk profile on MSMEs, thus locking them out of the credit market.

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