Micro and small enterprises (MSMEs) are a key pillar in national economic development. This is the reason they generate a lot of interest among economic planners.
Falling under the Micro and Small Enterprises Act, these micro enterprises have a maximum turnover of Sh500,000 and employ less than 10 people, while small enterprises have a turnover of between Sh500,000 and Sh5 million and 10 to 49 employees.
Although medium enterprises are not covered under this law, they are said to make a turnover of between Sh5 million and Sh800 million yearly and have 50 to 99 employees. There about 7.5 million MSMEs, contributing 40 per cent to the GDP.
Realising how critical this sector is to the economy, the country has striven to create a conducive environment for them to grow. Vision 2030, for instance, acknowledges the need to support small businesses to raise productivity, create jobs and contribute more to public revenues.
The enactment of Micro and Small Enterprises Act, 2012 was an important milestone in efforts to promote small businesses. The operationalisation of the Act saw the setting up of robust institutional mechanisms to give them a stronger policy and legal grounding. The Micro and Small Enterprises Authority (MSEA), set up in 2013 and is a product of the reformed regulatory framework, and is tasked with reinvigorating the management of the sector and providing an enabling environment for it to thrive. It is also responsible for facilitating the formalisation and upgrading of informal ventures, as well as promoting a culture of entrepreneurship.
All these reforms were informed by the realisation that MSMEs can be a game-changer in efforts to accelerate growth that engenders shared prosperity. They create a pool of skilled and semi-skilled labour force, which forms the basis for future industrial growth.
Despite the fundamental role they play, MSMEs are unable to operate to their optimum level due to a multiplicity of challenges. One of the key constraints is limited financial access. Credit from financial institutions is limited due to stringent lending conditions by commercial banks and microfinance institutions. Requirements on collateral or security, are way beyond the reach of this segment of businesses. Another challenge is that MSMEs face stiff competition from imported products.
While technology can boost such businesses, most of them cannot keep pace with new innovations due to the high initial and installation costs.
Inadequate managerial training is also an Achilles heel for owners of these businesses. Their managerial strategies are based on trial and error.
How can the above hurdles be addressed? There is an urgent need to reengineer the enterprises and bolster their potential as agents for economic take-off. The starting point would be on the level of governance and legislative framework. The national and county governments ought to set clear regulations that support the growth and development of small enterprises. Easing licensing processes and provision of tax incentives are sure ways to grow small businesses and encourage more people to establish start-ups.
Development of private finance schemes will consolidate efforts to fund MSMEs and bring them under one umbrella. And to ensure their prudent financial management, the government should develop standard financial reporting framework and universal guidelines. This will strengthen monitoring and enhance their credit rating.
The Ministry of Trade, Industry and Cooperatives, and county governments, should spearhead the development of MSMEs by creating incubation centres. We need to develop a database for these businesses and enhance coordination. Data management will ensure that the ventures in all the sectors are supported accordingly and with targeted initiatives.
Mr Keter, a political scientist, is a Jubilee nominated MP for [email protected] Gideon Keter