By Susan W. Kagundu
Establishment of a successful business venture is an aspiration
for many young people, especially with the current crisis of
unemployment facing the country.
Successful business ventures help to create job opportunities, improve living standards and contribute
to economic growth.
to economic growth.
Consequently,
the Central Bank of Kenya (CBK) targets a credit growth rate of between
12 percent and 15 percent for Small and Medium Enterprises (SMEs). Last
year, credit growth was 3.4 percent for the sector, with the slowdown
being attributed to the capping of interest rates.
Funds
required to grow a business mainly come from business profits,
borrowing from family or friends and borrowing from banks and other
financial institutions. However, these sources of finances may be
difficult to access particularly for SMEs.
With capping
of interest rates in September 2016, a stifling effect in the credit
market was created as banks became more cautious in their lending.
“The
interest rate caps have hampered access to credit by growth sectors,
particularly Small and Medium Enterprises,” said Dr. Patrick Njoroge,
CBK governor.
However, with new measures under Chapter
49 of the Banking Act, bank executives risk fines of up to Sh100,000 or a
two-year jail term for failure to allocate 20 per cent of their lending
to SMEs.
In spite of the new measures, the allocated
percentage may not be enough for small and medium business ventures.
This has made Private Equity (PE) a suitable alternative and a sure bet
for business growth.
Private equity investors provide business funding over the
medium or long term. In exchange for the cash injection, the investors
get a stake in the business.
There are various forms of PE investments including venture capital, leveraged buyouts and mezzanine capital.
Over
the years, it is notable that PE has increasingly become a suitable
alternative source of financing for high growth potential SMEs. PE
investments have helped the small businesses to achieve their expansion
objectives and provide strategic advice in their various stages of
development.
“I knew of private equity funding in 2015
from an investment seminar at the Nairobi Six-Eighty Hotel. I took a
bold step to apply and since then it has helped me grow my business,”
said Nelson Mutwa, an entrepreneur.
However, there may
be some challenges by entrepreneurs taking on PE funding, with one of
them being fear of losing control of the business by involving other
parties.
Such fears hold founding entrepreneurs from
advancing to growth stage, as they opt to have low returns but remain in
full control of their nascent businesses.
Although
involving investors means having a smaller piece of a large pie, it can
be a sure bet in taking your business to the next level.
Ms Kagundu is Executive Director, Fusion Capital Limited.
No comments :
Post a Comment