The Co-operatives and Micro, Small and Medium Enterprises (MSMEs) Development Cabinet Secretary Simon Chelugui has urged cooperative societies to provide financial support to the business community.
“Saccos have a crucial role to play in addressing this challenge by providing financial services and support to MSMEs. With your networks and expertise, you can help SMEs access the funding they need to grow and succeed,” said CS Chelugui.
The Co-operatives CS made these remarks on the sidelines of the Inaugural Sacco CEOs Roundtable Forum organized by the Co-operative Bank of Kenya. Industry players held the meeting to brainstorm how to grow co-operatives through the business sector and industrialization.
CS Chelugui said the Government has already made significant efforts to support MSMEs by providing funding opportunities, tax incentives, and technical assistance.
“There is still much work to be done, and as Co-operatives, we have a responsibility to support these enterprises,” said CS Chelugui.
The role of co-operatives in supporting MSMEs is expected to take shape following the recent launch of a micro-credit facility by the state-run Hustler Fund.
The Government plans to disburse cash through SACCOs and banks, with this second leg of the Hustler Fund enabling qualified MSMEs and registered groups to access loans of between KSh 100,000 and KSh 2.5 million.
Saccos, especially those with substantial balance sheets, membership and an array of financial products, are expected to benefit by accessing cash from the Hustler Fund for disbursement to members.
Almost all licensed financial co-operatives have a portfolio of micro-credit products. They will thus hit the ground running in disbursing financial products from the Hustler Fund to their members to boost their businesses.
According to the Bottom Up Transformation Agenda-2022-2027, passionately driven by the Kenya Kwanza administration of President William Ruto, MSMEs have received particular focus.
Available figures indicate that out of 19 million people that form the country’s workforce, only 15% work in the formal sector, while 85% or 16 million people are engaged in micro, small and medium enterprises (MSMEs), both formal and informal.
The MSME economy itself is extremely diverse. It ranges from well-established small and medium-sized firms (SMEs) that offer their owners and employees stable, dependable income to the unlicensed street vendors whose livelihoods are akin to a daily lottery in which they never know when they leave home in the morning, whether they will make KSh100 or KSh200, KSh300 on a lucky day, or get arrested and lose everything on a bad day.
According to the Kenya National Bureau of Statistics (KNBS) data in 2016, licensed stable MSMEs generated an operating surplus of Ksh50,000 an employee a month, while those in the “lottery” economy generated Ksh3,250.
Details in the Kenya Kwanza manifesto show that workers in formal MSMEs were 15 times more productive than those in the lottery economy in 2016. There are many reasons for this dichotomy.
The manifesto says the most readily apparent reason for this situation is the hostile environment that informal MSMEs operate in, which could not be better captured than the sight of street traders chased down the streets and bundled into lorries by the county authorities.
Trader anticipating such situations is constrained to carry only the wares they could flee with or are prepared to lose. It is also the case that there being low or no entry barriers to informal trade, there are too many businesses for the size of the market, meaning that many people are underemployed.
But the core problem for MSMEs is access to capital. 43% of them started with a capital of KSh50,000 or more, while only 6.5 percent of the informal ones were created with a similar amount.
It takes capital to make labour productive. For instance, a farmer with oxen can plough three or four times more land a day than one with only a hoe, while one with a tractor can plough ten times more than one with oxen.
A motorcycle will increase the income of a young man without the harassment of county askaris from KSh200 a day to KShSh400-Sh500.
The primary task of economic policy in development is to mobilize and influence the allocation of capital in the manner that generates the most benefits for the country.
These benefits include employment, equitable income distribution, economic stability, adequate tax revenue, and foreign exchange earnings.
