I was reading a research report recently and I was amazed by the current state of the SME sector in Africa. While SME owners are working hard to expand their business, there is little support within the business environment in their favour.
Most support and policy decisions tends to go towards the micro enterprises or the highvalue, low-risk corporate clients. Even the financial services sector has leaned towards the same culture.
My conversations with SME business owners confirms this research findings. Many people, who have been in business for the last five years or so, already know what can turn their business in a multi-million shillings venture.
However, many businesses stagnate. This is because there are very few growth financing options that are available to expand the enterprise.
For instance, a friend of mine has been in the electronics business for the past six years. During this time, he has managed to get a set of customers.
All along, his business has been importing goods from the manufacturer’s agent, who is handling the Middle East and Africa region, in Dubai. This entrepreneur knows that he would sell at a better price if he imported directly from the manufacturer.
The manufacturer, however requires that a distributor meets certain order quantities. While the volumes can be readily consumed in this market, he has trouble raising the amount of capital to meet the manufacturer demands as well as expand his venture to handle the sales and support for the local market.
When he approached his bank, he was asked to provide financial statements as well as a matching collateral. Having been in business for just six years, with the earlier years being a startup phase, the business does not have assets, whose value can secure the needed financing.
This businessman is now in a dilemma. He would like to expand but unavailability of funds is holding everything back. He has tried to evaluate different options such as venture capital but there are very limited prospects to secure the expansion financing he needs.
FAMILY TIES WITH SENIOR BANKER
This is a story that is repeated by many SME owners. The case is even worse for those who are manufacturing products and would like to expand. One requires almost family ties with a senior banker to get things going in their favour. This situation has led to the stagnation of many.
SMEs. When they get to a stage of turning over a few tens of millions shillings, many of these business stagnate. The problem is not limited to funding, many SMEs run in weak operational and governance structures. Even when they can secure a matching collateral, few have in place.
sufficient governance structures and systems to get them going. This leads to the existence of mainly two sets of enterprises, micro enterprises and large highvalue, low-risk corporate clients. This is what is referred to as the missing middle with African economies.
There is a big room for SME growth financing. This market has not gone unnoticed. Many foreign investors and funds are setting up in Kenya and the region to serve the “missing middle,” attracted by the ability to achieve a significant financial and social return.
With the continent promising favourable returns, Super Return Africa is one summit that is providing an opportunity for the SME business sector to connect with potential funding opportunities.
And although the event has not yet come to Kenya, there are several funds based in the country. However, they are few and rarely do we hear about successful funding announcements from them.
Growth financing for SMEs is one single bullet that each economy will need to emerge in Africa. In Kenya, it is a pressing issue for business owners, especially due to the traditional financing options that always require collateral. There is, however, hope because many SMEs have mastered the art of organic growth and have proven track records.
By Muthoni Ngatia, is the CEO/founder of Openworld Ltd Email:firstname.lastname@example.org @DorcasMuthoni