CBK Study Says Majority Of Kenyan SMEs Face Collapse This Month

Without new funding from banks or equity partners, about 75 percent of small and medium-sized enterprises (SMEs) in Kenya are at risk of closure by the end of this month, the country’s apex bank has warned.

Measures to limit the spread of the virus have severely affected small businesses and traders, who have had to close under lockdown rules. As the pandemic hits the economy, a lot of Kenyans are starting to operate small businesses out of the boots of their cars to make ends meet, reports show.

A study conducted by the Central Bank of Kenya in April reveals that most small businesses operating in the country lacked credit buffers and other resources to survive the slowdown caused by the coronavirus outbreak.

“There was a survey that was done at the end of April and that survey indicated that three quarters do not have cash beyond two months,” CBK Governor Patrick Njoroge was quoted by The EastAfrican as saying to a virtual news conference. “That means by end of June three-quarters of the SMEs are already on the ropes and will be gone because they do not have any cash to keep the lights on.”

Considering they account for a major percentage of employment in the country, Kenyan SMEs becoming financially distressed would result in a major blow to the East African country’s economy by adding to the total tally of job losses.

The government has set up a credit guarantee scheme under which it will provide guarantees for loans given to Kenya-based small and medium-sized businesses. “I wanted to underscore the urgency of putting in place the credit guarantee scheme. This is extremely urgent. We cannot do this as business as usual,” Njoroge said. Details of the scheme were still being worked on according to the CBK chief.

Treasury is seeking Parliament approval for Ksh3 billion ($30 million) as seed capital to commence the scheme, which sees the government commit to repaying banks a share of the loans in the event of defaults. The initiative has received a €100 million ($111 million) commitment from the European Union.