This archive report was first published on 27 April 2020.
Kenya's SMEs Face COVID-19 Challenges ¶
Small and medium-sized enterprises (SMEs) are the backbone of Kenya's economy, creating 30 percent of the jobs annually and contributing 34 percent to the country's GDP. However, the COVID-19 pandemic has significantly constrained SMEs, with many facing cash flow challenges and limited access to affordable credit.
According to Habil Olaka, CEO of the Kenya Bankers Association, SMEs are now at risk of closure, which will inevitably lead to mass layoffs. To cushion SMEs from the current health crisis, the Central Bank of Kenya has introduced measures such as reducing the Cash Reserve Ratio (CRR) to 4.25 percent, enabling the release of Sh 35.2 Billion for banks to support businesses.
Banks have also taken steps to support SMEs, including waiving mobile transaction fees, restructuring existing debts, and collectively raising financial resources for the government's National Covid-19 Emergency Response Fund. Additionally, the listing of SMEs by financial institutions in the Credit Reference Bureaus (CRBs) has been temporarily suspended to consider their current financial predicament.
Stawi, a mobile-based loan platform for SMEs, is an innovative solution that offers unsecured loans from Sh30,000 to Sh250,000 with repayment periods of between 1 month to 12 months at an interest rate of nine percent per year. This product is competitively priced, offering the lowest mobile loan cost for SMEs in the country.
As the World Bank notes in its October 2019 report, Securing Future Growth – Policies to support Kenya’s Digital Transformation, the digital economy is propelling Kenya's economic growth, driven by mobile telephony, rising internet usage, and uptake of e-commerce and digital services. Access to financial services has enabled Kenyans to alter their production and employment choices, thereby helping them transition out of poverty.
