Challenges Facing SMEs In Kenya

ByTristram Ouma

Sep 8, 2023
Challenges Facing SMEs In KenyaChallenges Facing SMEs In Kenya

Last updated on March 2nd, 2024 at 05:29 pm

In Kenya, small and medium-sized businesses (SMEs) have a tough road ahead. They face many problems that can make it hard to succeed. These problems include not having enough money, dealing with complicated rules, facing lots of competition, and struggling with poor roads and facilities. In this short discussion, we’ll take a closer look at these challenges that SMEs in Kenya have to deal with. By understanding and tackling these issues, SMEs can play a bigger role in Kenya’s economy and society.

Challenges Facing SMEs In Kenya

Some of the common challenges facing SMEs in Kenya today are:

1. Access to credit

Many SMEs struggle to obtain loans from formal financial institutions, due to high interest rates, collateral requirements, and lack of credit history. Some SMEs resort to informal sources of credit, such as mobile lending platforms, microfinance institutions, or savings and credit cooperatives, but these often charge high fees and have strict repayment terms. The World Bank has recently approved a $100 million project to support access to finance and enterprise recovery for SMEs in Kenya, especially those affected by the COVID-19 pandemic.

2. Poor infrastructure

SMEs in Kenya face challenges related to inadequate infrastructure, such as unreliable power supply, poor road network, and limited internet connectivity. These affect the quality and cost of production, distribution, and communication for SMEs. The government has been investing in infrastructure development, such as the Standard Gauge Railway, the Lamu Port-South Sudan-Ethiopia Transport Corridor, and the Konza Technopolis, but these projects are still ongoing and have faced delays and controversies.

3. Regulatory barriers

SMEs in Kenya have to comply with various laws and regulations that affect their operations, such as taxation, licensing, labor standards, environmental protection, and consumer protection. However, some of these regulations are complex, outdated, or inconsistent, making it difficult for SMEs to understand and comply with them. Moreover, some SMEs face corruption and harassment from public officials who demand bribes or favors in exchange for services or permits.

The government has been implementing reforms to improve the business environment for SMEs, such as the ease of doing business initiative, the Huduma Namba registration system, and the e-citizen portal.

4. Market competition

SMEs in Kenya face stiff competition from both local and foreign players in the market.

Some of the factors that give an edge to competitors include economies of scale, product differentiation, branding, quality standards, and access to markets.

SMEs have to constantly innovate and adapt to changing consumer preferences and market trends.

Some of the strategies that SMEs can use to enhance their competitiveness include forming networks and associations, leveraging digital platforms and e-commerce, engaging in value addition and diversification, and seeking partnerships and collaborations.

Some other challenges facing SMEs in Kenya today are:

5. Lack of skills and training

Many SMEs in Kenya lack the necessary skills and knowledge to run their businesses effectively and efficiently.

Some of the areas that SMEs need to improve on include financial management, marketing, customer service, quality control, and digital literacy.

SMEs also face challenges in accessing quality and affordable training programs that can enhance their skills and capacities.

Some of the initiatives that aim to address this gap include the Kenya Youth Employment and Opportunities Project, the Kenya Private Sector Development Project, and the Kenya Industry and Entrepreneurship Project.

6. COVID-19 pandemic

The COVID-19 pandemic has had a devastating impact on SMEs in Kenya, as well as globally.

The pandemic has disrupted the supply chains, reduced the demand, increased the costs, and imposed new health and safety measures for SMEs.

Many SMEs have been forced to close down, lay off workers, or reduce their operations. According to a survey by the Kenya National Bureau of Statistics, 75.9% of SMEs were not operating between April and June 2020 due to the pandemic.

The government has introduced various measures to support SMEs during the crisis, such as tax relief, credit guarantee scheme, stimulus package, and vaccine rollout.

However, some SMEs have also shown resilience and innovation by adapting to the new normal, such as shifting to online platforms, producing essential goods and services, and collaborating with other stakeholders.

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