Sticking points in move to help SMEs stay afloat

Helping Small and Medium Enterprises to continue operating post Covid-19 is proving to be a big challenge to both the government and the private sector. This has emerged from various forums of financial and economic experts.

A number of initiatives have been mooted in a bid to help SMEs withstand the effects of the coronavirus pandemic. However, challenges now threaten to derail these initiatives from making an impact.

One of the plans is the move by the Kenya National Chamber of Commerce and Industry (KNCCI) to lobby commercial banks and other international lenders for loans to rescue companies, mainly small businesses, from collapse.

Two weeks ago, Equity Bank #ticker:EQTY CEO, James Mwangi announced that they had launched Sh200 billion fund as part of efforts to mitigate the effects of the virus on SMEs.

Dr Mwangi made the announcement during an online conference convened by the KNCCI and by the chamber’s President, Richard Ngatia.

Equity Bank’s chief commercial officer, Polycarp Igathe who participated in the online meeting, said they would deal with the SMEs on a one-on-one basis.

“We shall address your problems individually and the first question to ask is whether you (the applicant) have the ability to repay the loan,” Mr Igathe said.

At another forum hosted by a local TV, economist David Ndii warned that unless the government comes out to rescue SMEs, few of them would survive the effects of Covid-19.

To save SMEs, which provides 80 percent of jobs in the country, Dr Ndii suggested that the government diverts development funds to them as credit, and repay in five years.

“The money the government is to borrow for development is no longer a priority. Use it to protect the economy,” the economist advised.

But Trade CS, Betty Maina who was also a discussant on the TV show said the challenge would be identifying individual SMEs to get credit since most of them operate informally and they are not organised in groups or associations.

To follow them and ensure they repay their loans would pose a problem, the CS said

There are 7.4 million SMEs in the country, according to the Kenya Bureau of Statics, and most of them are not registered. Some of these businesses such as salons, barbershops, eateries, taxis,matatus, and vendors operate casually despite providing employment for several people.

Central Bank of Kenya Governor Patrick Njoroge had previously said bailing out SMEs post Covid-19, would present a number of challenges.

The Governor said rescheduling of loans for the small businesses would not be an easy task taking into account how they operate.

Some of the reasons, he noted, are that most SME-s don’t have much in terms of “buffer” and rely on personal loans.

Mr Igathe said during the on-line conferencing, that money to lend entrepreneurs is there as a long as they demonstrate the capacity to settle the credit advanced to them. However, very few SMEs qualify for such loans leaving them in a very vulnerable state.

Dr Mwangi said most of the businesses will have to restart afresh once normalcy returns.

Globally, experts warn that post-Covid-19 would be a big challenge for most industries and companies, big and small.