By Janice Waihumbu- Marketing Associate
In line with our vision of transforming the African entrepreneurship space, we have officially launched our 2022 SME Access to Finance Report. With this report we hope to shed some light on the state of SME financing in Kenya and the role strategy planning plays in ensuring SMEs receive the financing they need to grow and expand regardless of age or turnover.
Some of the noteworthy facts from this report are:
- That of the businesses evaluated, 96.2% stated they currently need financing. However, of this 96% only 43% reported to have received any financing in the last 3 years. The report also revealed that 71% of the SMEs sought financing during their early stage of development either as working capital or capital for financing assets.
- In Kenya, SMEs mostly receive financing through grants, debt and equity financing in form of venture capital, which tend to have a strict assessment criterion to gauge investable enterprises. This financing bottleneck has prompted most MSMEs to opt for debt financing that is mostly provided by the banks, Micro-finance Institutions (MFIs) and non-banking institutions.
It was also quite clear from the research conducted, that access to credit facilities is very limited especially for small and growing businesses (SGBs) due to the existing unfavorable requirements for the provision of debt (Deakins, 2008).
In line with the information we garnered from our research, we concluded the report with recommendations for businesses seeking financing, as well as organizations seeking to support SMEs.
For the SMEs seek financing we recommend that they should:
· Have a strong business strategy with a clear business plan that includes financial and repayment planning.
· Properly account for project financing and maintain proper financial records for financial accounting, auditing and reporting purposes to the involved stakeholders.
· Create linkages and networks with potential financial partners and entrepreneurs who can help them create winning applications.
· Develop winning financial proposals, presentations and pitches that will appeal and assure potential financiers.
And, for the organizations seeking to support SMEs we recommend that they should:
· Improve access to relevant financing services on appropriate terms. This could be by facilitating collateral-free loan screening mechanisms for SMEs with low business experience.
· Promote funding for innovation in SMEs sector through offering performance-based loans and incentives.
· Create targeted SME financing forums that bring together financial intermediaries, interested ecosystem actors, and entrepreneurs/businesses.
· Provide capacity-building grants and technical assistance to expand lending activities to reach all SMEs.
· Provide trainings and coaching to SMEs and entrepreneurs on financial literacy and accounting mechanisms that encourage responsible borrowing and lending.
· Create and lobby for SME-friendly policies on financing that enable entrepreneurs to get funds at low interest rates, are minimal on collateral and have less restrictive requirements.
This report seeks to demystify the world of funding and financing for the business owner who is lost on where they should start. So, if you’re curious to know what other insights it contains, you can download it on the link below.