Inside State's Sh3.7b fresh plan to revamp MSMEs sector

Establishing a single-window portal for approvals, licences, and registration is one of the initiatives the government seeks to undertake in a Sh3.7 billion plan to revamp the micro, small, and medium enterprise (MSME) sector.

The government also wants to harmonise government fees, taxes, and levies affecting these businesses with the aim of promoting targeted fiscal and business incentives for them.

This is expected to lead to faster business registration, increased innovation, entry into new markets, improved competitiveness and more employment opportunities in the sector.

The plan contained in the draft MSME Policy 2025, which seeks to replace the 2020 policy, has listed related challenges that have informed these interventions while also roping in the relevant agencies, such as the Judiciary, which is among the implementors.

The role of the Judiciary is primarily dispute resolution among these businesses, with the policy document noting that the lack of an effective dispute resolution arbitration mechanism for MSMEs affects their growth and sustainability.

“MSMEs often face barriers when trying to resolve disputes with financial institutions or lenders. Traditional court systems can be costly, time-consuming, and complex for small businesses to navigate, which makes it hard to enforce contracts or resolve financial disputes quickly,” the document states.

The Micro and Small Enterprise Authority (MSEA), National Treasury, Council of Governors (CoG), Kenya National Bureau of Statistics (KNBS), Kenya Industrial Estates (KIE), ICT Authority, E-Citizen, Insurance Regulatory Authority (IRA), Ministry of Lands, and the Credit Guarantee Scheme (CGS) are some of the agencies expected to play a role in implementing the policy.

Others are the Kenya Institute of Business Training (KIBT), Kenya Industrial Research and Development Institute (KIRDI), Kenya Institute of Curriculum Development (KICD), the Technical and Vocational Education and Training Authority (TVETA), Kenya Industrial Property Institute (KIPI), Kenya Export Promotion and Branding Agency (KEPROBA), Business Registration Services (BRS), Kenya Bureau of Standards (Kebs), the Central Bank of Kenya and the Kenya National Federation of Jua Kali Associations(KNFJKA).

The policy is anchored on eight objectives. These are strengthening the legal, policy and regulatory environment for MSMEs; fostering entrepreneurial culture; enhancing access to decent and affordable infrastructure; access to diversified and affordable financial products; enhancing market access and economic opportunities for MSMEs; innovation, research and development; and building MSME resilience and adaptability.

In the plan, the government plans to spend Sh100 million to establish a single-window portal for simplified licenses, approvals and registration of MSMEs.

Additionally, Sh100 million will be spent to promote targeted fiscal and business incentives for MSMEs, where one of the expected outputs is the harmonisation and coordination of national government fees, taxes and levies affecting these businesses.

Harmonisation will also stretch to the standardisation of business development services, which will be undertaken by MSEA, KIE and KIBT, budgeted at Sh50 million.

The problem necessitating this strategy, as noted in the policy document, is that MSMEs face multiple levies and cesses that hamper inter-county trade.

The policy document says a collaborative approach with all stakeholders for aligned policies and county-level partnerships is necessary to address the unique local challenges and empower MSMEs.

“There is an evident need for continued intergovernmental cooperation between institutions and agencies of both levels of government to harness their interdependence and respective mandates to ensure that the combined bureaucracy of government remains a catalyst for business,” the draft policy reads in part.

Bureaucracy has also been cited among the challenges that hinder MSMEs from accessing loans.

The document, drafted by the Ministry of Cooperatives and MSME Development, notes the financing gap in the market for small businesses, placing it at Sh4 trillion, according to data from the International Finance Corporation (IFC).

It adds that while the government has established catalytic funds to address the needs of different categories of MSMEs, such as the Financial Inclusion Fund, Uwezo Fund, Youth Enterprise Development Fund and Women Enterprise Fund, many MSMEs cannot access them.

“Many MSMEs report difficulties in accessing government catalytic funds due to bureaucratic hurdles, limited outreach and lack of information on how to apply,” the policy document notes.

As a result, in addition to high interest rates, lack of tailor-made financial products and poor reach for some of the loans offered in the market, MSME owners rely on family to support their enterprises.

Enterprises, the document says, have limited access to financing from the international ecosystem where there is the possibility of lower interest rates and larger volumes of financing.

“Beyond credit, there are other important financial products and services vital for the development of MSEs, such as insurance, leasing and capital market instruments that still require further development,” it says.

It is for this reason that the government seeks to make auxiliary financial services such as insurance key in this policy for the sustainability of MSMEs.

The expected outcomes are increased insurance coverage among MSMEs, enhanced MSME understanding and awareness of insurance and improved affordability and accessibility of insurance products.

These outcomes will be measured by looking at the number of different types of insurance products available to MSMEs, the average cost of insurance premiums as a percentage of MSME revenue, the availability of microinsurance products tailored to the needs of these businesses and the number of premium payment options available to MSMEs.

This facet is contained under the access to diversified and affordable financial products and services objective.

MSEA, FIF, IRA, and CGS are the implementing bodies, with the budget for this category being Sh50 million.