Diversion of cash for personal use linked to non-performing SME
An ambitious plan by four Italian tycoons to set up a Sh71 billion city in Malindi town, Kilifi County, has run into headwinds following claims of fraud by Kenyan partners.
Diversion of cash for personal use is the biggest contributor to non-performing loans among small and medium enterprises (SMEs), analysts say.
According to Susan Situma, the Head of SME Banking at Absa Bank Kenya, many small business owners often fail to separate personal finances from business finances. By using money meant for the business to meet family needs, they end up struggling to pay suppliers, staff, and by extension the bank, when the loan repayment is due.
“When running a business, it is important to understand that there is a time for financial discipline and there is a time to pay yourself back. This is a business that you want to grow over time so that even your children can benefit from it,” noted Susan.
Towards this end, Absa has partnered with financing platform Melanin Kapital and the African Guarantee Fund (AGF) to train SMEs on financial literacy, so as to improve access to finance for businesses. Over 600 SMEs will be invited to go through a digital credit-readiness program run by Melanin Kapital.
Financial literacy training
Under the program, businesses will receive financial literacy training on aspects such as the importance of bookkeeping. This will enable them to know whether they are making a profit or not so that they don’t end up overspending just because they have a daily flow of cash.
“When the SMEs come for funding, we train them to ask the right questions, that is, what are you going to use the money for, and how will it benefit your business so that you are not taking out a loan only to realise you are not going to make a profit based on what you want to do,” added the official.
The businesses will then be able to apply for a loan from Absa Bank that will be guaranteed by the African Guarantee Fund. The targeted businesses will have access to loans starting from Sh1 million worth of capital to scale their activities.
In addition to financing, the program will provide these SMEs with sustainability training, capacity building, mentor matchmaking and networking activities to prepare them to get access to credit and grow their business sustainably.
