Bank loans to Treasury crowd out SMEs

The Treasury building in Nairobi. Kenyan banks prefer lending to the government and big businesses that have guaranteed cash flow, locking out SMEs from accessing credit. FILE 

By GEOFFREY IRUNG

 

In Summary

• Business people in Kenya cite lack of access to credit as big hurdle.

Lack of access to credit is the single biggest challenge for small and medium-sized Kenyan businesses, a global survey has shown.

The survey of 26,000 firms across the world commissioned by multinational workspace provider Regus shows that 86 per cent of East African firms reported difficulties accessing credit, compared to a global average of 76 per cent. In North Africa, the challenge of credit was cited at 69 per cent.

About 459 East African businesses responded to the survey, said Regus in a statement.

“The latest Regus research, canvassing over 26,000 business managers and owners in 90 countries, confirms that nimble and flexible Kenyan and East African entrepreneurs regard lack of access to credit (86 per cent) as the biggest deterrent to setting up a business today,” said part of the statement.

Kenyan research analysts have often noted that even when the economy is weak, commercial banks’ profits remain un-affected since the lenders concentrate on lending to the government and big businesses that have predictable cash flows.

“Defying weak economic performance — which saw credit to the private sector drop to an all-time low of 7.1 per cent (as in Oct 2012) — and a hotly contested election, our Kenya bank index has appreciated 68.5 per cent (last 12 months to May 31), outperforming the MSCI Emerging Markets Bank Index and the NSE 20-share Index, which returned 21.3 per cent and 33 per cent, respectively,” said a Standard Investment Bank report on the banking sector released this week.

(Read: Investors bet on banks to outperform NSE index)

Of the 459 firms surveyed in East Africa, 70 per cent also identified red tape as a big challenge compared to 74 per cent globally, 45 per cent in North Africa and 69 per cent in the Middle East.

Lack of government support was identified as a challenge in East Africa by 57 per cent of the respondents compared to a slightly higher level of 61 per cent globally.

In Kenya, a Micro and Small Enterprises (MSEs) Act was enacted last year to support and protect small businesses.

The Act creates a special agency to facilitate and develop small businesses with an annual turnover of below Sh500,000, estimated to account for 18 per cent of the country’s GDP.

Other hindrances cited include domination of the market by large corporations and current economic conditions as a result of recession in many parts of Europe and less-than-favourable economic climate in North America and Japan.

In the same survey, businesspeople in East Africa were found to be more resilient compared to most others around the globe with 92 per cent saying they would be ready to restart a business that has collapsed. The global average