Micro, Small & Medium-Sized Enterprises Day (27th June, 2018)

Printer-friendly versionPDF version

Micro businesses are small business with five employees or less. Small businesses are privately owned corporations, partnerships, or sole proprietorships that have fewer employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to apply for government support and qualify for preferential tax policy varies depending on the country and industry. On the other hand, they are commonly referred to as SMEs or Small and medium-sized enterprises. In Kenya, the term changed to MSME, which stands for "micro, small, and medium-sized enterprises". For micro enterprises, the maximum number of employees is up to 10 employees. For small enterprises, it is from 10 to 50. For medium enterprises, it is from 50 to 100. SME is terms used differently in different countries.

Just like other developing countries in the world Kenyan economy is being driven by SMEs. A recent National Economic Survey report by the Central Bank of Kenya (CBK) indicate that SMEs constitute 98 percent of all business in Kenya , create 30 percent of the jobs annually as well as contribute 3 percent of the GDP.

According to the 2014 survey, 80 percent of the 800,000 jobs created in the year came from the informal sector which is dominated by the SMEs. Kenya’s SME is dominated by the micro and small enterprise and will be found in city estates and along major highways. Most prominent form of SMEs in Kenya is the “Jua Kali Sector “, here artisans manufacture all types of merchandize shoes, wheelbarrow, metal boxes and assortment. The artisans produce a variety of high quality hard and soft wood furniture, fabricated doors and gates, priceless pieces of art created from scrap metals and carpets.

Despite of their vibrant existence, these sector still face challenges listed below; 

  • Hindered by inadequate capital -finance remains the most critical challenge affecting the SMEs in the country. Few banks or saccos are eager to finance SMEs especially at the inceptions stage
  • limited market access, poor infrastructure,
  • Inadequate knowledge and skills and rapid changes in technology.
  • Corruption and other unfavourable regulatory environments present other bottlenecks to this vital cog of the economy.
  • Lack of adequate managerial training
  • Inadequate knowledge and skills
  • New laws and regulations
  • Rapid technology changes

Many SMEs in Kenya do not survive up to their first birthday. It is said that a total of 2.2 million MSMEs were closed in the last five years, 2016 inclusive.

However, despite all these challenges, we believe that the future of Kenya’s SMEs is bright and we can see light at the end of the tunnel. We see many SMEs dying but we hold our hopes high because as they die new ones are created. What remain is for us to ensure that those that are established survive longer and grow to even bigger enterprises.

Having looked at our situation in Kenya, it is wise only to examine the value and challenges of SMEs in general. The advantage of being an SMEs is;

  • Contribution to the economy in terms of output of goods and services;
  • Creation of jobs at relatively low capital cost
  • Provide a vehicle for reducing income disparities
  • Develop a pool of skilled and semi-skilled workers as a basis for the future industrial expansion;
  • Improve forward and backward linkages between economically, socially and geographically diverse sectors of the economy
  • Provide opportunities for developing and adapting appropriate technological approaches
  • Offer an excellent breeding ground for entrepreneurial and managerial talent
  • SMEs are believed to be the engine room for the development of any economy because they form the bulk of business activities in a growing economy
  • They are vehicles for poverty reduction
  • Develop entrepreneurial capabilities including indigenous technology.
  • Access to the infrastructural facilities occasioned by the existence of such SMEs in their surroundings, 
  • Facilitates stimulation of economic activities such as suppliers of various items and distributive trades for items produced and or needed by the SMEs, stemming from rural urban migration,
  • Enhances standard of living of the employees of the SMEs and their dependents as well as those who are directly or indirectly associated with them.
  • Promotes the use of local raw materials requiring simple technology leading to use of local resources
  • Income generation: SMEs constitute major avenues for income generation and participation in economic activities in the lower income and rural brackets of developing societies especially in agriculture, trading and services.
  • They are closer to their clients
  • They are more flexible because of their small size and simple structures, ease in adopting change giving them the advantage of getting closer to their customer, known variation in the market way ahead.
  • Can easily detect and take advantage of small market niches
  • Make decision faster
  • Their small size makes it possible for them to know each other
  • Easier and faster to communicate.

The small nature of SMEs makes provides an avenue for disadvantages to their growth and existence. They face the following disadvantages;

  • Finding funds is more difficult for them
  • Due to the small employee number they may limit them in reaching a large number of  customers and retain them
  • Their cost are higher
  • It is not easy for them to endure long period of crisis
  • Low bargaining power with suppliers and clients
  • Access less talent
  • Have difficulty in accessing technology
  • Lack of time to plan future projects
  • Lack of skills
  • Information overload
  • Lack of direction and planning
  • Working in the Business rather than Working on the Business
  • Innovation – lack of creativity
  • Trying to do it alone – no successor
  • Poor marketing

Compiled by Grace Sitienei – University of Nairobi Library

Sources

  1. http://www.businessdictionary.com/definition/microbusiness.html
  2. https://en.wikipedia.org/wiki/Small_business
  3. https://integriaims.com/en/advantages-and-disadvantages-for-smes/
  4. http://www.africanreview.com/finance/business/smes-are-growing-kenya-s-economy-3
  5. https://www.standardmedia.co.ke/business/article/2000221491/why-400-000-smes-are-dying-annually
  6. https://www.kenyaplex.com/resources/5754-challenges-faced-by-small-and-medium-enterprises-in-kenya.aspx
  7. http://gabrielataylor.com/small-business-challenges/