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How can the Kenyan government help SMEs?

ByTristram Ouma

Sep 10, 2023
How can the Kenyan government help SMEs

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

This article answers the question: How can the Kenyan government help or support SMEs?

The Kenyan government plays a crucial role in supporting small businesses. Small businesses, often called SMEs, are like the heartbeats of our local communities and are also the economic backbone of Kenya comprising the majority of 98% of all business entities.

However, this sector remains highly informal as only 20% of the 7.4 million Micro, small, and medium-sized enterprises operate as licensed entities.

These SMEs create jobs, boost the economy, and bring innovation. But sometimes, they face tough challenges. So, how can the government step in to help?

In this discussion, we’ll explore some straightforward ways the government can lend a hand to SMEs, making sure they thrive and contribute even more to our neighborhoods and nation.

What are the Ways in which the Kenyan Government can Support or help SMEs?

The Kenyan government has a range of strategies at its disposal to support small and medium-sized enterprises (SMEs), including:

1. Facilitating Access to Finance

The government can play a pivotal role in aiding SMEs in securing financing from financial institutions by offering partial guarantees on their loans. Furthermore, ongoing efforts are to amend the Public Finance Management Act, of 2012, to enable credit guarantees for SMEs.

Additionally, the government can directly extend loans to SMEs through initiatives such as the Supporting Access to Finance and Enterprise Recovery (SAFER) project, backed by the World Bank, designed to assist over 250,000 SMEs affected by the COVID-19 pandemic.

However, the proposed flow of funds to the MSE sector could be increased by:

  • Deregulation and liberalization of the financial sector to permit
    banks to charge competitive interest rates and appropriate fees
    in order to get a fair return on their lending to SMEs. In addition,
    the government was to introduce appropriate legislative
    changes that would allow development finance institutions to
    accept deposits.
  • The government should assist with the sourcing of foreign loans for
    MSEs and bearing the associated foreign exchange risks in
    respect of such loans.
  • The government should explore the possibility of establishing an export
    guarantee insurance scheme and MSE export finance scheme
    to increase MSE exports.
  • Increased training for MSE entrepreneurs facilitated through
    legislative changes such as the revision of the Industrial Training
    Act, which would allow banks to undertake training of their
    MSE clients using the levy. Further, banks should be encouraged
    to strengthen their business advisory services to accommodate
    the needs of MSEs. A special training fund contributed to by
    the government, private sector and donor community should
    also be set up to help train those operating in the sector.
  • Changing the negative perception about the sector within the
    banking community by carrying out training workshops for
    bank officials at all levels, which would increase awareness of
    the potential of lending to the sector and provide best practice
    techniques of doing so.
  • Reviewing the restrictive collateral requirements and other
    regulations and procedures that reduced the flow of funds to
    the sector in order to make them more flexible to accommodate
    the needs of MSEs. Further, a study would be commissioned on setting up a national credit guarantee corporation to alleviate
    the collateral problem for MSEs.
  • External finance of the budget deficit by the government in
    order to increase availability of credit to the private sector and
    hopefully to the MSE sector.
  • Setting up a venture capital fund to provide equity capital for

2. Tax Incentives and Grants

SMEs can benefit from a reduced tax burden through tax exemptions, deductions, or credits on taxes like income tax, value-added tax, or payroll tax. The government can further back SMEs by providing grants, tax credits, or equity investments to support their establishment, growth, or innovation.

3. Training and Mentorship

Enhancing SMEs’ competencies and capabilities is achievable through government-sponsored training programs, mentoring services, or online courses encompassing topics such as digitalization, marketing, leadership, accounting, and legal matters. Additionally, the government can endorse business incubators, accelerators, or hubs that give SMEs access to resources, networks, markets, and experienced mentors.

4. Streamlining Regulations and Procedures

Simplifying the regulatory landscape for SMEs is possible by reducing the number of steps, fees, or documentation required to initiate and sustain a business. The government can also facilitate business registration by introducing a unified one-stop shop or an online platform that simplifies the entire process.

5. Enhancing Infrastructure and Connectivity

Investment in improving both physical and digital infrastructure vital to SMEs, including roads, ports, electricity, water supply, internet access, and telecommunications, can significantly boost SME operations. This improvement enhances connectivity, accessibility, and reliability for SMEs, enabling them to expand their reach to more customers and suppliers.

6. Enabling environment

The cornerstones of ensuring an enabling environment for the growth
of smallscale enterprises were:

  • Investment incentives including general deregulation and
    liberalization of the economy, provision of investment
    allowances to encourage relocation, and targeted infrastructure
    provision and other financial incentives for rural entrepreneurs;
  • Assistance with technological acquisition, development and
    adaptation through KIRDI and the universities;
  • Improved market access for MSE products through public
    procurement policies that favoured MSEs, encouragement of
    development of subcontracting linkages with large enterprises;
  • Cost-effective coordination mechanism for existing and newly
    formed MSE support programmes among various government
  • Public procurement policies to be adjusted to increase public
    sector purchase of MSE products;
  • Wider dissemination of information on domestic and export
    markets using government agencies;
  • Establishment, within the Ministry of Planning and National
    Development, of a more cost-effective coordination mechanism
    Evolution of policy in the MSE sector in Kenya
    Review of government policies for the promotion of micro and smallscale enterprises in Kenya
    for existing and new small enterprise programmes among
    various implementing agencies;
  • Priority funding to performing government institutions charged
    with small enterprise development and increased funding given
    to local authorities to develop urban infrastructure facilities for
    smallscale enterprises;
  • Encourage increased representation of smallscale enterprises
    through formation of small enterprise associations so as to
    ensure more effective use of programme assistance; and
  • Government to undertake a comprehensive review of all
    restrictive regulatory Acts and rules including licensing
    requirements, building codes and the Employment Act, and
    relax all those that unnecessarily impede the operations of

Wrapping up: How Can the Kenyan Government Support/help SMEs

These are some of the strategies the Kenyan government can employ to foster the growth of SMEs in the evolving business landscape. By offering financial support, advisory services, tax incentives, training opportunities, innovation support, regulatory simplification, infrastructure development, and streamlined registration processes, the government can empower SMEs to overcome challenges and seize emerging opportunities.