Almost three-quarters of Kenya’s small businesses are at risk of collapsing by the end of June due to reduced cash flows according to the central bank.
Central Bank of Kenya (CBK) Governor Patrick Njoroge on Wednesday during the post-Monetary Policy Meeting, he underscored the urgent need to have the SME credit guarantee scheme in place emphasizing that the “matter is dire.”
This was in reference to the April survey by McKinsey and Company conducted under its financial decision-maker sentiment series that found out 52 percent of surveyed respondents are unsure of economic recovery while 16 percent of the surveyed are pessimistic.
Dr. Njoroge says a greater percentage of the Micro, Small, and Medium Enterprises (MSMEs) in Kenya do not have a lot of buffers in terms of credit or resources they can use and they would ‘generally die quickly as they are very vulnerable.’
“Three-quarters of SMEs would be… I mean, they are on the ropes, they will be gone because they do not have any cash to keep the lights on, pay for supplies and compensate workers. The urgency to SMEs is clear to us and we understand it as we have a pulse on that part of the economy,” he said.
“If we don’t have a scheme urgently, the matter will only get worse. That is how critical the SME issue is.”
“This is extremely urgent we cannot do this as business as usual,” he said. “From our perspective, this is one thing we are insisting on. The time frame should be as short as possible.”
He also said it was not just financing only that they need but an issue of providing solutions to their problems, therefor instance exists a need to drive demand for their products.
The SME credit guarantee scheme will receive funding from the National Treasury and will repay banks in case SMEs default on their loans.
The government availed Ksh.3 billion as seed capital for the scheme as part of the Covid-19 stimulus.
“The intention here is to provide affordable credit to small and micro-enterprises. And to do so in an efficient and structured manner, borrowing from the professional standards and practices of private sector credit arrangements,” said President Uhuru Kenyatta when he unveiled an 8-Point Economic Stimulus Programme, amounting to a total of Ksh 53.7 Billion.
He also allocated Ksh 10 Billion to fast-track payment of outstanding VAT refunds and other pending payments.
Kenya Association of Manufacturers (KAM) and KPMG report on the impact of Covid-19 on manufacturers in Kenya to help businesses navigate the pandemic, they proposed clearing outstanding VAT refunds and pending bills, re-evaluating tax reliefs, providing moratorium on changes in the tax regime, establishing an emergency rescue fund, re-evaluating regulatory overreach, and developing a comprehensive rebound strategy.
In the report, 37 percent of SMEs have scaled-down production. On the other hand, 79 percent of surveyed companies are experiencing cash flow constraints, with 86 percent of SMEs facing the same challenge which is affecting their ability to meet tax obligations, pay employees, or pay operating costs.
Support SMEs through policy intervention
Peter Ndegwa, Safaricom Chief Executive during a special United Nations Global Compact Academy session that explored how small businesses can survive Covid-19 on Tuesday, further emphasized that supporting SMEs through policy intervention will make ‘a big difference in driving sustainable and purpose-driven business’.
“We are thinking of partnering with others to support supply chain financing using our distribution infrastructure with Mpesa, particularly partnering with banks and Fast-moving consumer goods (FMCG) who use a lot of SMEs,” Ndegwa told the UN Global Compact Academy Session.
Ndegwa said the telco is supporting its customers’ SMEs to digitize their operations to help their employees to work from home.