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
- 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
- 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.