Lack of funds is leading to closures of small and medium enterprises in Kenya

A new study from Nairobi-based management consultancy Viffa Consult has revealed that the small and medium enterprises (SME) sector in Kenya is struggling from a deficit in funding, leading to challenges when it comes to the marketing and distribution of their products. 

As Kenya looks to drive economic growth across the economically thriving region of East Africa, SMEs are touted to be the backbone of this growth. Nevertheless, a growing body of analysis is revealing that SMEs in the country are not operating in an environment that is conducive to expansion.

A recent report from global professional services firm PwC revealed that domestic SMEs and family businesses feel that their operations are threatened by the barrage of international competition that has emerged in the Kenyan market, resulting from a policy of drawing investment.

Meanwhile, despite their status as a prime driver of domestic growth, SMEs suffer from a lack of investments. Viffa Consult is a management consultancy based in Nairobi that offers business advisory services to clients across the African market, in addition to offering training and outsourcing support.

New analysis from Viffa has indicated that SMEs are facing barriers to marketing their products, brought about by poor financing. The growth of the SME sector has coincided with expansion in the Kenyan fintech environment, which has led to a reliance of SMEs on mobile-based loans to fund their operations.

Nevertheless, these loans tend to be short term in nature, which has affected the sustainability of growth options amongst smaller firms in the country. The results of this lack of financing are beginning to manifest themselves. According to Viffa, SMEs contribute 30% of Kenya’s GDP, although 46% of these firms close down within a year of establishment.

“SMEs are cutting back on non-critical expenses of marketing and physical expansion, with scarce finances being utilised to pay rent, salaries, water and electricity,” said Victor Otieno, Managing Director of Viffa Consult. Failure to pay for utilities is leading to closures in the sector.