For a long time, economists have opined that small businesses are the lifeline of the economy. Players in the financial sector have been pushed by the government to offer them financial inclusion so that they can grow and buttress the economy in a stronger way. Yet this has not become a reality. The “Hustlers”, informal traders, have remained far outside the financial realm, many with few options on how the can grow. After overseeing Equity bank’s growth, with a large customer base of small businesses, CEO James Mwangi (pictured) today speaks on what the mama mboga, or the Gikomba trader can do to attract capital and generally grow his or her business.
If you were to give advice to small traders today, what would you tell them to do to grow their business?
The biggest advice I would give first, best practices: you must have the best practices in business and best practices start with governance decisions. You must have processes and procedures that help you manage risk. There are policies and procedures that keep risks away. When I talk of governance decisions I mean the purpose for setting a business. That purpose should be clear so that your goals are aligned to it. Secondly, I must counsel on the need for patience. I have been on this for the last 30 years. I joined banking in 1991. That’s when I became the finance and strategy director. Patience is good for individual growth as well as the growth of any business. Third, I would advise on delayed gratification. It is essential for business growth.
Statistics show at least 90 per cent of start-ups fail before the fifth year of operations. What are some of the tips you would offer to such enterprises?
The biggest challenge is people jumping into the bandwagon when they are starting businesses. They don’t understand the market. They do it because someone has done it. So they keep on copying what others have done without research of the market to understand what the market needs. Businesses that thrive and grow to scale, are the ones that attempt to solve society’s problems. Most businesses are not started with the objective of solving the problem. They are driven by the objective of making money. You don’t make money by starting a business, you make money by solving a problem. Profit is a reward for solving a problem. The bigger the problem the bigger the opportunity. The bigger the opportunity the bigger the possible scale.
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Entrepreneurs must also be empowered. We are migrating to a greater extent from the pleasant society where we grew food for the family and suddenly we are finding ourselves in the financial and economic world where we do things for the market. But we haven’t sat down and found out how things are done. We haven’t invested. Yes, we have education but remember we have a theoretical education framework. We forgot to invest in tertiary education that gives people the skills and know-how of how to do business and in the process, most of our people don’t have the requisite skills. So as soon as the business starts they lack the capacity and competence to grow it.
Do you think Kenya has got what it takes to support budding entrepreneurs in terms of markets, capital and regulations etc?
Kenya for instance has a lot of challenges. That itself is a huge opportunity for Kenyans to create solutions for those challenges. Society is always willing to pay a price for solutions to its problems. You enhance the quality of the people and the standard of society by solving its problems. So capital has never been a challenge because of its not Kenyan capital. Its global capital. We are 50 million people in Kenya. You can imagine the size of that market. Our Growth Domestic Product per capita has grown significantly from $1000 (Sh108,360) to about $2000 (Sh216,720). So its not just 50 million but it's 50 million people who’s purchasing power has doubled in seven years.
Young people are advised not to place focus on looking for white-collar jobs and instead focus on entrepreneurship. Do you think this is feasible advice?
Young people don’t have to go through the legacy of the past. They can improve technology and provide intellectual technology just by starting with knowledge. It is no longer the old factors of labour and capital as the factors of production. We are now seeing intellect. The population is much younger with a very different taste. It means the products of the past are not going to be sustained in the future. The young people can study the taste and preferences of other young people and re-invent and disrupt the market all over again. No great idea has ever missed capital because capital is always looking for a great idea. Great ideas promise great returns. So young people should not be discouraged by the market, we are in a global market. If you look at Ali baba its not just a Chinese platform. Its now a global platform. Amazon, Facebook…so we should start seeing the market as the global market. We should start seeing the global capital backing our great ideas because capital is always looking for a great idea.
We still have constrains for SMEs in the informal sector as a barrier to financial inclusion. Small businesses like jua kali artisans, Gikomba traders are hugely left out of the country’s financial sector. in terms of regulation, what do you think can be done to catalyse ease access to funding?
The fact is that 80 per cent of the Kenyan workforce is entrenched in the informal sector. Whether it is Gikomba, Jua Kali whichever you want to call it. We realised we can’t stay without society or without banking that contributes to supporting 80 per cent of our livelihoods. It is not really the government. It is the informal sector and private sector that is the engine of transformation.
Let’s talk about bank insurance and small scale traders. We have seen traders suffer huge losses from fire, theft. Does equity have such an insurance plan that can help boost small scale traders?
Like traders in Gikomba, we know the risk. So to protect them we tell them to take fire insurance. We always say let’s be prudent, let’s collectively secure each other. It is very important that you secure the achievements of people. The essence of insurance is to secure achievements otherwise events like fire take people back to poverty.