21% of SMMEs in Kenya are licensed - report

The SME sector in Kenya has long been recognized as a key driver of economic growth and development. For the first time in nearly two decades, the Kenya National Bureau of Statistics (KNBS) has shed light on the size and composition of this vital sector. According to the latest KNBS report, Kenya is home to 7.41 million micro, small, and medium enterprises (MSMEs), out of which only 1.56 million are licensed. The report highlights that a significant portion of these enterprises operate at the household level without proper licensing. To gather data for the report, KNBS surveyed 50,000 farms and establishments, as well as interviewed 14,000 households, providing insights into the characteristics, operational areas, startup capital requirements, and challenges faced by SMEs in the country. The report also outlines key recommendations to support and enhance the SME sector's contribution to the economy. One notable aspect raised by the report is the distinction between licensed and unlicensed MSMEs, with a call for more detailed analysis and understanding of informal sector dynamics. The report categorizes businesses in the SME sector based on the number of employees and capital needed for operations. Micro-enterprises typically have fewer than 10 employees, small enterprises employ between 10 to 49 people, and medium-sized enterprises have 50 to 99 employees. Collectively, these businesses provide approximately 14.9 million jobs in Kenya and contribute 28.5% to the country's GDP. Wholesale and retail trade, along with repair of motor vehicles and motorcycles, emerged as the leading employment generators, accounting for over half of the total workforce in the sector. The manufacturing and accommodation sectors also play significant roles in job creation within the SME landscape. The report further notes that most business owners in the sector have primary and secondary education qualifications, with less than 10% holding undergraduate or postgraduate degrees. This presents an opportunity for young graduates to explore entrepreneurship in the SME space and leverage available government funding initiatives to start and grow businesses. However, access to funding remains a persistent challenge for many SMEs in Kenya. The report highlights that 62% of SMEs do not perceive the need to borrow from banks, while 12.3% find existing loan options too expensive. Common reasons for SMEs seeking loans include working capital injections, business renovations, and inventory purchases. Despite the availability of funds and support from the government, issues related to financial inclusivity and accessibility persist, hindering the growth and expansion of SMEs in Kenya. The interviewee in the CNBC Africa segment emphasized the need for improved access to financial resources and a more inclusive approach to financing SMEs, pointing out historical challenges and recent amendments that have influenced lending behavior among banks. The insights from the KNBS report underscore the critical role of SMEs in driving economic growth, job creation, and innovation in Kenya. As the country seeks to harness the full potential of its SME sector, addressing funding gaps, enhancing educational opportunities for entrepreneurs, and fostering a supportive business environment will be key to unlocking sustained growth and prosperity for SMEs and the wider economy.