The Role of Small and Micro Enterprises in Kenya’s Economy

1. Introduction

Small and micro enterprises (SMEs) are an important source of economic growth and employment in many developing countries. In Kenya, they account for more than 90 percent of all businesses and employ more than 60 percent of the country’s workforce. However, they face significant challenges in accessing finance, markets and business development services. This paper provides an overview of the SME sector in Kenya, the business environment in which they operate, and the policy initiatives that have been undertaken to support their growth.

2. Small and Micro Enterprises in Kenya

SMEs are defined as enterprises with fewer than 20 employees. In Kenya, they account for more than 99 percent of all enterprises and employ more than 60 percent of the country’s workforce. The vast majority of SMEs are informal businesses, operating without formal registration or licenses. The sector is dominated by micro enterprises, which make up 97 percent of all SMEs.

The SME sector is a major contributor to the Kenyan economy, accounting for more than 30 percent of GDP and 50 percent of exports. SMEs also play an important role in providing employment and contributing to poverty reduction. In 2007, the government launched a National SME Policy with the aim of promoting the growth of the sector. The policy has three main objectives: to create an enabling environment for SMEs, to increase access to finance for SMEs, and to provide technical and business development support to SMEs.

3. The business environment for SMEs in Kenya

The business environment for SMEs in Kenya has improved significantly in recent years, following reforms to the regulatory framework governing businesses. These reforms have made it easier to start and operate a business in Kenya. However, there are still some areas where the business environment could be improved, such as access to finance, infrastructure and market information.

4. Credit availability for SMEs in Kenya

Credit is an important factor for promoting the growth of SMEs. However, access to credit remains a challenge for many small businesses in Kenya. This is due to the high cost of borrowing, lack of collateral and limited access to banking services. As a result, many small businesses rely on informal sources of credit, such as family and friends, which can be expensive and unreliable. The government has introduced a number of initiatives to improve access to credit for small businesses, including the establishment of a Microfinance Regulatory Authority and the launch of a Guaranteed Credit Scheme for Small Enterprises.

5. Infrastructure development for SMEs in Kenya

Infrastructure is an important enabler of economic development. However, Kenya’s infrastructure is still underdeveloped, particularly in rural areas where most small businesses are concentrated. This lack of infrastructure creates difficulties for small businesses in terms of transportation, communication and power supply. The government has embarked on an ambitious program to improve infrastructure across the country, with a focus on rural areas. This includes the construction of roads, railways and airports; the expansion of telecommunications networks; and the electrification of rural areas.

6. Market information and business development services for SMEs in Kenya

Many small businesses in Kenya struggle to access market information and business development services due to a lack of awareness about these services and their benefits. As a result, they miss out on opportunities to grow their businesses and create jobs. The government has launched a number of initiatives to address this problem, such as the Kenya Business Information Portal and the Kenya Investment Promotion Agency.

7. The impact of Structural Adjustment Programs on SMEs in Kenya

The Structural Adjustment Programs (SAPs) implemented by the Kenyan government in the 1980s and 1990s had a negative impact on small businesses. The SAPs led to the closure of many small businesses and an increase in unemployment. In addition, the SAPs had a negative impact on the business environment, making it more difficult for small businesses to access finance, markets and business development services.

8. The role of government policy in promoting SMEs in Kenya

The Kenyan government has introduced a number of policies and initiatives to promote the growth of SMEs. These include the National SME Policy, the Microfinance Regulatory Authority, the Guaranteed Credit Scheme for Small Enterprises, and the Kenya Business Information Portal. In addition, the government has embarked on an ambitious program to improve infrastructure across the country, with a focus on rural areas.

9. The regulatory framework affecting SMEs in Kenya

The regulatory framework affecting SMEs in Kenya has improved significantly in recent years, following reforms to the regulatory framework governing businesses. These reforms have made it easier to start and operate a business in Kenya. However, there are still some areas where the business environment could be improved, such as access to finance, infrastructure and market information.

10. The challenges of promoting SMEs in rural areas of Kenya

Many small businesses in Kenya are concentrated in rural areas, where they face significant challenges due to a lack of infrastructure and market information. In addition, rural small businesses often struggle to access credit and business development services. The government has embarked on an ambitious program to improve infrastructure across the country, with a focus on rural areas. This includes the construction of roads, railways and airports; the expansion of telecommunications networks; and the electrification of rural areas.

11. Conclusion

SMEs play a vital role in the Kenyan economy, contributing to economic growth and employment. However, they face significant challenges in accessing finance, markets and business development services. The government has introduced a number of initiatives to support the growth of SMEs, including the National SME Policy, the Microfinance Regulatory Authority, the Guaranteed Credit Scheme for Small Enterprises, and the Kenya Business Information Portal. In addition, the government has embarked on an ambitious program to improve infrastructure across the country, with a focus on rural areas. These initiatives will help to create an enabling environment for SMEs and enable them to contribute more effectively to economic development.

FAQ

The primary challenges faced by small businesses in Kenya and Sub-Saharan Africa are lack of access to finance, limited markets, high costs, and political instability.

Small businesses in this region overcome these difficulties by diversifying their products and services, expanding into new markets, and forming partnerships with larger businesses. The impact of these strategies on small business growth potential is positive, as it allows them to tap into new sources of revenue and grow their customer base.

Some common characteristics of successful small businesses in this region include innovation, adaptability, and a focus on customer service.

Access to finance is a limiting factor for small business development in Kenya and Sub-Saharan Africa due to the high interest rates charged by banks and the lack of collateral required for loans.

Policy measures that could support the growth of small businesses in this region include providing access to affordable financing, reducing red tape and bureaucracy, and improving infrastructure.