Sunday, September 30, 2018

What State funding for SMEs should get right

STATE funding Businesses getting funding should demonstrate ability to grow and aid job creation. FILE PHOTO | NMG 
In response to the proposed parastatal reforms, the Presidential Task Force five years ago submitted its report to President Uhuru Kenyatta. And in line with the stated objective of improving
management and governance of State corporations, the taskforce recommended the scrapping or merger of some parastatals.
The report, for instance, boldly recommended amalgamation of the Youth Enterprise Development Fund, Uwezo Fund, Women Enterprise Development Fund, and Micro and Small Enterprise Authority into one corporation.
The majority of those who read the report gave it a thumps-up, arguing that the recommendations offered the best chance ever of aligning the State corporations to the 2010 Constitution’s aspiration that they should contribute to the achievement of national development goals without over-dependence on the Exchequer.
But despite Mr Kenyatta’s directive that the reforms be implemented, limited progress has been witnessed so far.
It was, for instance, not until May 2018 that the regulations meant to guide the operationalisation of the Biashara Kenya Fund were approved.
Nonetheless, in a recent interview, the Public Service cabinet Secretary Margaret Kobia gave arguably the clearest signal yet on the path to execution, noting that the Biashara Kenya Fund would be implemented within six months.
The timeline may be ambitious, but a step in the right direction and Kenyans can only hope that the ministry will remain committed to the stated timelines.
Over the years, taxpayers have urged the government to implement these recommendations to avoid duplication and overlaps in State agencies, without much success.

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But on a more positive note, the government’s focus on creating an enabling environment for the youth, women and disabled people to do business through provision of credit and capacity building programmes is laudable.
It is an open secret that access to credit has been difficult since the introduction of interest rates cap on bank loans in 2016.
The affirmative action fund has been the holy grail of enterprise, especially among the aforementioned vulnerable group, enabling them to access credit for business development.
Quite a sizeable number of beneficiaries of these funds have gone ahead to establish business entities and joined the much needed pool of micro, small, medium enterprises (MSMEs).
However, statistics paint a grim picture as most MSMES don’t live to celebrate their third birthdays. There exists a high failure rate among emerging MSMEs with most having a very low survival rate within the first three years of operation.
This is not sustainable, especially for entrepreneurs who borrow to establish business entities.
With the establishment of the Biashara Kenya Fund, we have a perfect opportunity to invest in business development support for the start-ups.
This would ensure sustainability of the entities.
And with the amalgamation of these funds, the government is able to pool resources to adequately provide business development support.
With the Treasury having allocated Sh2 billion annually to Biashara Kenya loaning at concessionary rate of six per cent, the main objective of this fund should not only be to offer financial credit but to also ensure investment in sustainable businesses countrywide.
This offers a solid business case to invest highly in long-term business development support to ensure that the businesses access funding only when they commit to receiving these services.
To upscale the training countrywide, we can leverage on Huduma Centres to provide a hub for the business development services.
Serious investment in continuous business development support is key to the government achieving its capacity building objective.
The aim of the fund should be to invest in businesses that will still be in existence after three years, looking to scale and providing employment opportunities. Achieving this requires the informal businesses to mature into formal and professionally managed enterprises.
The establishment of this fund is a huge policy achievement and could be a platform to reach milestones in curbing the twin challenge of youth unemployment and poverty.
Additionally, it could facilitate a platform to develop a database, conduct research and publish public reports on long-term MSMEs performance.
Considering the country’s huge public debt burden, investment in business development support could ensure sustainable MSMEs and raise their contribution to the Gross Domestic Product which is a sure win for the youth and the country.
Ajowiis a co-founder at Six Degrees Consultancy. ajowijuma@gmail.com
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