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Funding opportunities for SMEs in Treasury Budget

By Awal Mohammed | June 9th 2021

In the second Budget reading since the onset of the pandemic, the Treasury has heavily invested in rescuing the small and medium enterprises which are on the brink of collapsing.

Treasury Cabinet Secretary Ukur Yatani, in the soon-to-read budget, has lined up goodies to this vital sector. 

1. Easier access to loans

According to budget estimates seen by the Enterprise, the Treasury will advance Sh3 billion to the credit guarantee scheme in a bid to de-risk small businesses. The scheme will be a welcome relief for small business which have been struggling to get funding from commercial banks particularly during this pandemic period. On their part, commercial banks have been wary of issuing loans to SMEs due to their high risk of defaulting on loans issued to them. Under the scheme, SMEs are to access cheap loans from local banks verified by the Central Bank.

This comes a few weeks after a report by CBK on non-performing loans in the country. According to the report, a total of 204,802 of the 915,115 micro, small and medium enterprise (MSME) loan accounts valued at Sh98.7 billion were classified as non-performing as at December 2020. This amounted to 22.4 per cent of total MSME loan accounts, 15.5 per cent of the total value of outstanding MSME loans and 3.2 per cent of the overall banking sector loan book.

“Overall income (including both interest and non-interest income) generated by the commercial and microfinance banks from lending to MSMEs in 2020 stood at Sh67 billion or 11.3 per cent of the banking sector’s total income,” states the regulator. This was a decline from 2017 when overall income from MSM facilities stood at Sh74.1 billion or 20.7 per cent of the banking sector’s total income as at December 2017.

“The decline in incomes from MSME facilities is particularly attributable to the subdued business environment that resulted from the Covid-19 pandemic in 2020 and its adverse impact on MSMEs income generation and debt-servicing capacity,” stated the regulator in its report.

2. Funding to SMEs in manufacturing

Another area that the State has highlighted in its budget to help the sector is advancing finance to SMEs engaged in manufacturing.

In Yatani’s second budget, the State will issue Sh616 million to small and medium businesses involved in production of goods.

The cash will be a huge relief to these businesses, which have for decades complained of lack of capital to help them in the manufacturing of products.

According to the latest data available from the government parastatal in charge of the sector, the bulk or 84.4 per cent of SMEs are in the service industry, 11.8 per cent are in manufacturing while 3.3 and 0.5 per cent are involved in agri-business and construction industries, respectively.

The move by the State to pump in cash to the manufacturing sector among the SMEs is seen as a direct resuscitation of the sector, which has been on its knees since the pandemic struck.

3. Funds for the youth in business

Yatani has also allocated Sh454 million and Sh62 million to Youth Enterprise Fund and Uwezo Fund respectively in a move seen to help stabilise start-ups among the youth.

The pumping of cash into these programmes cement the government’s initiative last year where it launched Component Two of the Kenya Industry and Entrepreneurship Project (KIEP 250+) micro-website and the SMARTME platform, an online application tool that will identify and select (SMEs) for funding.

The SMEs will be selected for the six cohorts to be undertaken during the remaining four years of the KIEP project, whose aim is to increase innovation and productivity in select private firms by creating linkages between start-ups, traditional industries and international networks.

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