MSMEs are businesses owned by an individual or small group of individuals that operate mainly in the informal sector and are highly labour-intensive. In Kenya, MSMEs contribute to over 40% of the country’s total income, with a small fraction of MSMEs lying in the formal sector.
Despite their huge contribution to the country’s labour force, MSMEs face serious challenges that, if left unchecked, can adversely affect the business environment in the country, affecting the health of many micro, small, and medium enterprises.
Some of the challenges MSMEs face in Kenya.
- Limited access to credit
The creditworthiness of many MSMEs in the country is very low, making most of the small businesses lack the required security to access low-interest loans from lending institutions. This hinders the capability of many MSMEs to expand and realize their full potential.
- Adverse government policies
Adverse government policies such as unfavourable tax reforms and complexities in business registration processes, among others, discourage entrepreneurial activities and hence reduce the ease of doing business by many small businesses in the country which are not capital intensive.
- High preference for imported commodities
People tend to perceive that imported commodities are superior to locally produced goods. This reduces the market share for locally made commodities, affecting the informal sector (Juakali sector).
- Inadequate government support.
Most MSMEs in Kenya collapse before they even gain stability due to a lack of incentives from the government to motivate small entrepreneurs. This is attributable to the competitiveness of the business environment in Kenya, where capital-intensive businesses have an added advantage over newly established small businesses.
If these factors are left unchecked, the business environment for many MSMEs will continue to be very conducive, especially for new entrants in the market.
