Go beyond conferences and set up a support system for SMEs
- What this sector needs is a working credit guarantee system where resources and finances unlock even more money from the banking system the sector.
A comprehensive policy document on such a scheme has lain in some government office since 2016.
The government must quickly establish the proposed Biashara Bank to play the role of a single consolidated SME agency in charge of all support systems for this critical sector.
My initial reaction was to turn down the invitation to attend last week’s SME conference that was organised by the Kenya National Chamber of Commerce and Industry and Nation Media Group.
I have over the years adopted a very cynical attitude towards conferences and seminars. My instinctive inclination is to dismiss conferences as mere talking shops. Whenever I hear about them, my mind conjures up the image of a bunch of middle-aged men in grey suits shuffling between ‘working group sessions’, pretending to be very busy as if oblivious to the fact that the lofty resolutions they issue at the end of the day would neither be legally binding nor have a snowball’s chance in hell of being implemented.
Yet as I followed the proceedings of last week’s conference, and having read through some of the presentations, I was convinced that this year’s version of the SME annual conference was not a talking shop.
When you manage to bring together 10 Cabinet secretaries and a dozen principal secretaries in one forum and get them to field questions and exchange views with ordinary business people, you have taken a major stab at influencing policy and forcing your own issues on the national agenda.
It is not often that you find well-informed citizens of this country coming together to exchange views with top economic policymakers. We must encourage debate and public discussions because, unlike the minister of yore, they are unelected public officials not directly accountable to the people.
In terms of new ideas, I must confess that the conference did not go beyond presenting the usual list of grievances the SME sector presents whenever they have an opportunity to air their views: Lack of affordable credit, poor infrastructure, pending bills, predatory taxation and corruption.
The truth of the matter is, the dire state of affairs in the SME sector is not due to lack of new ideas. The biggest problem is lack of capacity to take up and implement the new ideas in existing policy documents.
Here is what the government must do if it wants to introduce significant change in this sector. First, go back to the recommendations of the presidential task force on parastatal reforms of November 2013.
That task force came up with many solid suggestions, the centrepiece of which was creation of a SME agency to bring together all government institutions, including the Youth Development Fund, Women Development Fund, Uwezo Fund, Kenya Industrial Estates (KIE) and Micro and Small Enterprises Authority.
Why do have so many institutions doing the same thing? If you go back to history, you will agree with me that the framework we had for supporting small businesses in the 1970s and ‘80s was way superior to what we have.
It was based on a graduated model. The first government office an SME went to look for credit from was the District Loan Board (DLB). If your business grew to a level where you needed more money than the DLB offered, you would go to KIE, where support included provision of sheds.
If your needs exceeded KIE and you had now graduated into a mature business that required more money, you went to the Industrial Development Bank (IDB).
Beyond IDB, you were now considered qualified for a mix of financing, a combination of larger and long-tenor loans and equity financing. The place to go was the Industrial Commercial Development Corporation (ICDC).
I am not suggesting that we go back to this model. My point is, since the institutions created to support the graduated model have more or less collapsed, we must come up with more efficient ones to support small businesses.
I return to the recommendations of the presidential task force of 2013. The point was made that reforming the sector and coming up with a new support system required several interventions starting from facilitation of SME registration.
SMEs need to be supported on how to develop linkages with markets and acquire labour and raw materials at competitive prices. They require support in acquiring linkages to large enterprises for subcontracting work. They need to be supported and facilitated to plug into global value chains.
How about affordable credit? What this sector needs is a working credit guarantee system where resources and finances committed by the government are leveraged and used to unlock even more money from the banking system the sector.
A comprehensive policy document on such a scheme has lain in some government office since 2016. The government must quickly establish the proposed Biashara Bank to play the role of a single consolidated SME agency in charge of all support systems for this critical sector.