Feature: Kenyan small traders face obstacles in accessing credit

Securing credit from financial institutions to sustain and expand businesses is one of the nightmares Kenyan micro, small and medium-sized enterprises (MSMEs) have been facing for years.

About 46 percent of business run by identified traders collapsed in less than 12 months in 2015 with one of the factors being lack of funds to operate the enterprise, a study by Kenya National Bureau of Statistics (KNBS) released last year showed.

Now, the Kenyan parliament is deliberating on possible legislations that would address the credit access obstacles to the traders who operate close to eight million such enterprises.

The Movable Property Security Rights Bill (2016) has stipulated provisions favourable to the MSMEs in regard to acquiring funds from lenders to run or boost a business.

The proposed laws warrant use of movable assets which would be tangible or intangible as collateral to seek for loans from the creditors.

The bill has included deposit accounts, electronic securities and intellectual property rights as intangible assets for use as security.

Tangible assets incorporate all types of goods and include motor vehicles, crops, machineries and livestock under the proposed laws whose approval and further enactment would bring life to the almost dying businesses.

Consideration of the movable assets in the bill as security for accessing credit was informed by fact of MSMEs lacking fixed assets such as land and buildings to offer as collateral, said leader of majority in Parliament Aden Duale while introducing the bill to the MPs in the house on February 8.

"The people doing business in small malls or small wholesaling lack fixed assets such as land and building to use as collateral for borrowing but they have movable property in their shops which are considered by most financial institutions as risk collateral," he said.

"So the Movable Property Security Rights Bill will create ease of doing business and focus on the use of movable assets as collateral," he added.

Despite the expected achievements from the legislation once they become implementable, players in the MSME sector pin hopes for a permanent solution to credit hindrances for the small traders on establishment of a dedicated MSE fund, currently unavailable.

"Any attempt to accord affordable credit to MSEs is very much welcome but at the end of the day what we want is the guarantee scheme and the fund like Uwezo Fund to guarantee the MSE sector because access to credit is a nightmare," said Richard Muteti, director at the Micro and Small Enterprises Authority, a state entity looking into issues of the MSEs.

"We want an MSE fund dedicated for small business people in the country who cannot meet the requirements of the bank," emphasized Muteti, also a director at the Small and Medium Enterprises Support, East Africa.

He said difficulties in obtaining credit from banks had made it impossible for the about 20 million MSEs in the East African nation to modernize their production.

"They cannot add their stocks because they don't have what the banks require. They don't have the security and they don't keep their books properly because they are not educated to that level. They cannot afford accountants," he said.

"So any attempt to solve their credit nightmare is so much welcome and hope it passes in parliament," he said.

MSME is one of the largest informal sectors in Kenya offering job opportunities to millions of both the skilled and the unskilled Kenyans.

The significance of the informal sector in absorbing the unemployed is profound considering the incumbent government's target of creating one million jobs annually mainly through establishment of new industries and trading entities, expansion of existing businesses and creating a favourable environment for business growth.

Many businesses in the country are currently wading in financial turmoil attributed to multiple challenges among them rise in cost of operations against declining returns.

Thousands of citizens have lost jobs as companies restructure their management to a minimal size while others stop operations entirely.

With the changes in the country's employment sector, the scale of joblessness is expected to exceed the present 55 percent, approximated by Agha Khan University based on its findings from a 2015 survey focusing on youth unemployment in Kenya. Endit