There is growing recognition of the important role small and medium enterprises (SMEs), and Agri-SMEs in specific, play in economic development. Agri-SMEs play a major role in developing economies such as Kenya, especially if we’re to rebound from the financial implications of Covid-19, the geopolitical tensions in Ukraine, and drought in almost half of the country. However, the greatest challenge they face in realizing their full potential is access to credit. Indeed, business-friendly credit facilities would go a long way in uplifting the kadogo economy, and the Kenyan economy at large.

According to the World Bank, SMEs make up about 90 percent of business globally and employ over 50 percent of the workforce. SMEs also contribute up to 40 percent of the GDP in developing countries like Kenya. However, Agri-SMEs receive only 2-7 percent of total bank credit.

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Interestingly, according to the Kenya Association of Manufacturers (KAM), Kenya has about 7.41 million SMEs yet only 1.56 million of them are licensed. This means that 5.85 million productive businesses are unlicensed and therefore may find it difficult to access credit. Locking out such a high number of businesses from accessing credit facilities or making it hard for them to access such facilities, is counterproductive and detrimental to the country’s economic growth.

Undoubtedly, SMEs come with various credit risks and don’t enjoy the same economies of scale as established brands. However, it’s possible for financial institutions to come up with arrangements to mitigate these risks. The time is ripe for fintech to further create conducive products that enable SMEs to access the loans they need to be productive and profitable.

Fintech solutions and digital enablers help to address access to finance barriers for SMEs.

In a recent address, The President pledged that his administration will provide the necessary support to make it possible for financial institutions to lend to this category of businesses. That is a welcome motivation to be innovative and develop SME-friendly credit facilities.

However, small businesses also need to understand the importance of repaying the facilities extended to them.

By the end of April 2022, data from the Central Bank of Kenya (CBK) showed that 14.1 percent of all loans defaulted.

There is a need for loan repayment awareness across SMEs. Loans are disbursed after having assessed that a business is able and capable of paying back. Failing to repay a loan will not only affect the defaulting SME but will also affect others looking to leverage the same facilities to grow. Credit facilities depend on loan repayments to sustain their credit offering to other small businesses.

Additionally, there is a need for SMEs to maintain a good credit score with lenders. Some fintech companies like Avenews – a startup that has a digital infrastructure for agri-SMEs – lend money to businesses based on their financial record keeping.

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After reviewing the landscape and challenges faced by agri-SMEs, Avenews created an app that provides everything an agribusiness needs, from money management tools to digital payments and access to financing. Through a structured procedure, and thorough vetting of the cycle of the business, Avenews processes hundreds of data points to check the creditworthiness of an applicant and decide how much loan to issue. Such a structure creates a level of discipline and transparency in digital lending. By using the app, Agri-SMEs can digitize their business, make more informed financial decisions and improve their eligibility for financing.

The government has expressed willingness to make it possible for hustlers to access hustler-friendly credit facilities. Fintech has expressed its willingness to develop hustler-friendly credit facilities to meet the access deficit. For the entire ecosystem to work, the hustlers themselves need to remain committed to the cause.

Responsible borrowing is needed from SMEs for the Affordable Credit plan to work, not just the government and credit institutions.

The writer is Country Manager, Avenews