The Central Bank of Kenya (CBK) has warned that three-quarters of small and medium-sized enterprises(SMEs) have no cash to run beyond June.
This dire situation implies that these SMEs will not be able to pay their workers or even obtain fresh supplies, leaving them with no option but to shut down.
“Most SMEs do not have credit buffers, and our surveys show that 3/4 of these businesses are already on the rocks and will soon die quickly. Unless a credit guarantee scheme is put in place, things will only get worse for these businesses,” said Dr Patrick Njoroge, Governor, Central Bank of Kenya (CBK).
He made these remarks in a virtual media conference held after the CBK’s Monetary Policy Committee(MPC) meeting on 27th May 2020.
“Support for this critical sector of the economy does not only mean throwing money to these small businesses. Policy interventions should go beyond finance to boost demand for products and services from these businesses and provide other forms of support,” said Dr. Njoroge.
He said the Government’s recent economic stimulus plan has high chances of success because it targets medium and small-scale business enterprises-which is the backbone of Kenya’s economy.
Small businesses that continue to bear the brunt to night curfews, social distancing, and other containment measures, especially in Nairobi and Mombasa, include hair cut lounges, food kiosks, entertainment sports, hotels and drinking joints.
The latest hotel chain to send its employees on unpaid leave after shutting its joints, beginning the month of June, includes Serena Group, which operates game lodges, leisure spots, and entertainment resorts.
SMEs form the third pillar of President Uhuru Kenyatta’s KSh53.7 billion economic stimulus plan in which KSh10 billion has been set aside to clear outstanding Value Added Tax (VAT) refunds and other pending payments.
The State has also allocated another KSh3 billion as seed capital for the SME Credit Guarantee Scheme, to provide cheap credit to small businesses.
However, Parliament is yet to approve Treasury’s request to allocate KSh3 billion as seed capital to kick-start this credit scheme.
While the Central Bank of Kenya is yet to obtain data for Q1, 2020, Dr Njoroge insists that it has not revised Kenya GDP Growth for 2020 figures.
Last Month, the CBK forecast a GDP growth forecast of 2.3% in 2020 and 6.4% in 2021. “These are indeed uncertain projections which could change as soon as we receive new data in a few weeks,” said Dr Njoroge.