The Kenya Development Corporation (KDC) has taken a significant step towards empowering Small and Medium Enterprises (SMEs) across the country by launching a Sh2 billion credit support program. This initiative, in partnership with India’s Export-Import (Exim) Bank, is designed to provide favorable financial terms to Kenyan businesses for acquiring technology, machinery, and equipment from India. The program is expected to accelerate Kenya’s industrial modernization, enhance competitiveness, and foster sustainable economic growth.

A Strategic Partnership for Economic Growth

The newly launched Sh2 billion fund is a part of KDC’s broader strategy to support the growth and development of local SMEs, which are crucial to Kenya’s economy. SMEs contribute significantly to employment and GDP, accounting for approximately 80% of Kenya’s employment and 33.8% of the country’s GDP. However, these enterprises often face challenges in accessing affordable credit, limiting their ability to invest in technology and infrastructure that could enhance their productivity and competitiveness.

India’s Exim Bank, known for its focus on promoting cross-border trade and investment, has been a key partner in this initiative. By offering favorable terms for the acquisition of technology and machinery, the partnership aims to enable Kenyan businesses to upgrade their operations, adopt modern production techniques, and ultimately, compete more effectively in both local and international markets.

Favorable Financial Terms

One of the standout features of the KDC’s new fund is the extremely favorable financial terms offered to SMEs. According to Kennedy Wanderi, Acting Director of Corporate Services at KDC, the interest rates on loans provided under this program are in the single-digit range, significantly lower than the prevailing commercial rates offered by Kenyan banks. This reduction in borrowing costs is expected to make it easier for SMEs to access the capital they need to expand and innovate.

“The terms are extremely friendly, with the interest rates at single-digit figures, which is half the prevailing commercial rates in Kenyan banks,” Wanderi noted during the launch event. Such competitive rates are anticipated to encourage more SMEs to take advantage of the facility, thereby driving industrial growth and job creation.

Government Support and Strategic Objectives

The Kenyan government has been keen to foster investment and technological transfer through strategic partnerships, recognizing that such collaborations are essential for the country’s long-term economic development. During the launch of the program, Hassan Abubakar, Principal Secretary of the State Department for Investment Promotion, reiterated Kenya’s commitment to these goals.

“Embracing this facility offers numerous benefits. Acquiring advanced technology will significantly boost productivity and competitiveness within our industries,” Abubakar stated. He further emphasized that the adoption of advanced technologies would not only create jobs but also enhance skill development across various sectors.

The government’s involvement also extends to ensuring the timely approval of tax exemptions and providing the necessary support for the seamless implementation of the Line of Credit (LOC) facility. This proactive approach is intended to remove bureaucratic hurdles that often delay the disbursement of funds and the execution of projects.

The Role of KDC in SME Development

The Kenya Development Corporation has been instrumental in supporting the growth of SMEs in Kenya. Since 2021, KDC has lent approximately Sh3.5 billion to various businesses, pushing its active loan book to Sh7 billion. This includes loans inherited from the three merged Development Finance Institutions (DFIs), namely the Industrial and Commercial Development Corporation (ICDC), Tourism Finance Corporation (TFC), and Industrial Development Bank (IDB).

The merger of these DFIs into KDC was a strategic move aimed at consolidating resources and expertise to create a more robust financial institution capable of addressing the financing needs of Kenya’s private sector. By reducing defaults and enhancing the creditworthiness of its loan portfolio, KDC has positioned itself as a key player in the country’s economic development.

Addressing Challenges Faced by SMEs

Despite their importance to the economy, SMEs in Kenya face a myriad of challenges, including limited access to finance, inadequate infrastructure, and a lack of skilled labor. The launch of the Sh2 billion fund is a significant step towards addressing these challenges, particularly the issue of financing.

Access to affordable credit has long been a barrier to growth for many SMEs. Traditional lenders often view SMEs as high-risk borrowers due to their limited financial history and the perceived volatility of their business models. This has led to high-interest rates and stringent lending conditions, which many SMEs are unable to meet.

KDC’s new fund, with its favorable interest rates and focus on technology acquisition, directly addresses this issue. By reducing the cost of borrowing and providing targeted financial support for technological upgrades, the program is expected to help SMEs overcome one of their most significant hurdles.

The Broader Economic Impact

The economic impact of the Sh2 billion fund is expected to be substantial. By enabling SMEs to invest in modern machinery and technology, the program will not only enhance the productivity of individual businesses but also contribute to broader economic growth. Improved productivity leads to higher output, which in turn drives economic expansion.

Moreover, the focus on technological transfer and industrial modernization aligns with Kenya’s Vision 2030, the country’s long-term development blueprint. Vision 2030 aims to transform Kenya into a newly industrializing, middle-income country by providing a high quality of life to all its citizens. The KDC fund is expected to play a crucial role in achieving these objectives by fostering innovation and supporting the growth of key industries.

Collaboration with Industry Stakeholders

The success of the Sh2 billion fund will depend heavily on collaboration between KDC, the government, and industry stakeholders. The launch event brought together representatives from the High Commission of India, the Export-Import Bank of India, GOMA Overseas PVT Ltd, the Kenya Association of Manufacturers (KAM), the Kenya Dairy Board, and other key players in the industry. These stakeholders are expected to work together to ensure the effective implementation of the fund and maximize its impact.

KAM, in particular, will play a vital role in ensuring that manufacturers are aware of the opportunities available under the program. By facilitating access to the fund, KAM can help its members upgrade their production facilities, adopt new technologies, and improve their competitiveness both locally and internationally.

Challenges and Opportunities Ahead

While the Sh2 billion fund presents significant opportunities for SMEs, there are also challenges that need to be addressed to ensure its success. One of the primary challenges is ensuring that the funds are allocated efficiently and reach the intended beneficiaries. This requires robust monitoring and evaluation mechanisms to track the disbursement and utilization of funds.

Another challenge is the need for capacity building. For many SMEs, accessing credit is just one part of the equation; they also need the skills and knowledge to effectively utilize the funds. This includes training in financial management, technology adoption, and business development. KDC and its partners must invest in capacity-building initiatives to ensure that SMEs are equipped to make the most of the financial support provided.

Conclusion

The launch of the Sh2 billion SME trade fund by KDC, in partnership with India’s Exim Bank, marks a significant milestone in Kenya’s efforts to support the growth and development of its SME sector. With favorable financial terms, government support, and collaboration with industry stakeholders, the fund is poised to have a substantial impact on Kenya’s economy.

By empowering SMEs to invest in technology and modernize their operations, the program will help to drive industrial growth, create jobs, and enhance Kenya’s competitiveness on the global stage. However, to fully realize these benefits, it will be essential to address the challenges associated with fund allocation, capacity building, and effective implementation.

As Kenya continues its journey towards industrialization and economic transformation, initiatives like the KDC fund will be crucial in ensuring that SMEs, the backbone of the economy, are not left behind. With the right support and strategic partnerships, Kenya’s SMEs have the potential to be powerful drivers of sustainable economic growth and development.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

15th August, 2024