Why Swiss-style SME funding can work for Kenya

A credit guarantee scheme backed by the CBK, is currently under consideration. FILE PHOTO | NMG   

By RALF HECKNER

Some of the most interesting conversations I have had during my tenure here, have been with
Kenyans who had no real interest in hearing a foreigner tell them how beautiful their country was – the amazing wildlife and the magnificent landscapes.

What they want to know from a Swiss Ambassador is whether there is still a realistic chance that Kenya can “restore its lost glory”; and how exactly this can be done.

Will Kenya manage to be a country with adequate decent housing for all; free education and health services; clean footpaths and well-maintained roads; and all the other things which citizens of my country are very proud to enjoy, but also have long come to take for granted as the inevitable outcome of accountable political and economic governance?

They seem to want Kenya to be a country where young men and women can have faith that if they work hard and get a good education, they will be able to find the kind of employment or entrepreneurial options, that guarantee them a good middle-class life.

Well, I have now been here for some time and I feel that I am better able than before to answer that question. And my answer is an unequivocal Yes!

But why do I feel so confident about this? Well, I am a historian by academic background. And what any historian can tell you is that the days when we considered the fate of a nation to be in the hands of “great men” are long over.

We may still read about the lives of great men of antiquity or even of just a few centuries ago and how they guided the affairs of their nations. But behind all that we know, what really mattered was the calibre of people that they led. And that the real makers of history are the ordinary people of any nation.

And not only are the ordinary people the shapers of their own destiny. Particularly important in a country seeking to make giant leaps of economic progress is the fact that the people are the real wealth of any nation.

Consider my country, Switzerland. We are not richly endowed with vast natural resources, oil, or minerals. We do not have endless acres of rich fertile plains, which could make us an agriculture powerhouse. And yet we surmounted all these limiting factors, and for decades past when there has been any list of the richest nations, Switzerland has been somewhere near the top of that list. This is not because Switzerland produced a George Washington or some other famously great leader who led us to prosperity. Rather this prosperity is a tribute to the entrepreneurial spirit of the Swiss people.

So, what is it about the Kenyan people that has impressed me so much? It is simply that Kenyans have an incredibly entrepreneurial national culture. Kenya’s enterprising population is its real wealth. Kenyans want to be self-employed. They want to set up their own business. And so, I do not doubt that Kenya will surmount any temporary problems or setbacks that it may face and be a beacon of stability and prosperity in this region if not in all of Africa.

Let me illustrate this point with one current example: In Switzerland, small and medium enterprises (SMEs) form 99 percent of companies and create two thirds of jobs. Indeed, they are the backbone of the Swiss economy.

Acknowledging how important these SMEs are to the economic health of the country, when the Covid-19 pandemic struck, the Swiss government in March unveiled its package of $20 billion in emergency loans to support small businesses. It eventually increased this to $40 billion.

In its first week of operating, it disbursed more than $15 billion to 76,034 businesses! This is how the Swiss government assisted restaurant owners, bakers, electricians, hairdressers.

How did that work concretely? Businesses could apply for a loan up to 10 percent of their annual revenue. The maximal amount was $500,000. The loan is interest-free and is provided by Swiss banks. The Swiss government gives a full credit guarantee on the loan. A simple declaration is all that is needed.

If your business needs more liquidity, there is another lending process which was put in place by the Swiss government. You can borrow up to $20 million from your bank. The Swiss government guarantees 85 percent of the loan at 0.5 percent interest rate. The bank assumes the risk of the remaining 15 percent charging a commercial interest rate.

The key to this successful financial assistance to SMEs is that everything was done through the existing banking system. Bank and customer know each other based on an existing financial relationship. Banks already had the credit history of their clients. I heard numerous stories of small business owners who received their loan from their bank within hours!

I was pleased to see that much the same kind of thing is being planned in Kenya. A survey quoted by the Central Bank of Kenya (CBK) governor during his recent “virtual press conference” showed that about 75 percent of Kenya’s SMEs are under the risk of collapse by the end of June 2020 if they fail to get fresh funds from banks and equity partners.

A credit guarantee scheme backed by the CBK, is currently under consideration. The intervention is being designed with a view of the government providing guarantees for loans given to Kenya-based SMEs, meaning the government commits to repay banks a share of the loans should the small traders default.

What I have seen here in Kenya over the past five years is a determined people, who have one thing in common with the many great Kenyan marathon champions: whatever the setbacks or frustrations, they simply refuse to give up. They keep on moving forward. All they ask of their government is the facilitation of economic opportunity.

The key message from both President Uhuru Kenyatta and the Health Cabinet Secretary, Mutahi Kagwe, in the fight against the Covid-19 pandemic, has been that the final victory will be due more to what individual Kenyans do.

I would say the same applies to Kenya’s quest for economic advancement. It is individuals who create wealth, not governments. And so, Kenya’s future prosperity depends more on the determined and creative efforts of individual entrepreneurs than it does on the government.

Dr Heckner is the Switzerland Ambassador to Kenya