SMEs Engine of Growth, Study Shows

Business Daily (Nairobi)

Paul Wafula

19 July 2011

Small and medium enterprises (SMEs) want banks to be forced to lend more to small businesses, a new research shows. The study showed that three quarters of the more than 17,000 SMEs surveyed feel that governments overlook them in policy making, despite the fact that they have recovered from financial crisis. Seventy-four per cent said banks should be forced to lend more to small businesses, which are critical for recovery of global economy.

Regus, a firm that provides virtual and flexible office space to SMEs, conducted the global research early this year.

SMEs can potentially steer themselves – and the global economy – away from the storms behind them. If governments and banks give them more of the support they’re asking for, they’ll do so even quicker, said the report.

Government support

Forty-six per cent of the SMEs said they had increased their revenues over the previous 12 months as more than 75 per cent expect their revenues to rise in the next year.

“Easing access to finance and cutting red tape are crucial because they let entrepreneurial SMEs pursue their core goals of innovation and growth,” said Therese Meyer, commercial director, Regus Africa. “But other support is also helping today’s new breed of agile companies to focus on their core aims – to have an access to a ready-to-roll infrastructure that frees up managers and staff to be productive.”

The study findings mean that commercial banks still have a long way to go to change the way SMEs view them in terms of financial accessibility despite recent efforts in the sector to tap into the small businesses. In Kenya for instance, several banks that had shunned residential estates and high density places such as markets are opening branches or using the services of agents in rural and less populous areas to increase their reach.

This has seen Equity Bank, Consolidated Bank, Kenya Commercial Bank (KCB), Standard Chartered Bank among other revamp their SME banking sector. For example, KCB has said it was keen on growing lending to the SMEs to Sh25 billion, a three-fold increase.

However, Kenyan SMEs say the prevailing poor economy due to high production costs may prevent them from full recovery. “Due to the unique nature of SMEs, taxation laws and Government regulations should be developed with SMEs in mind to ensure compliance,” said Mr Alex Tito, a Finance director at Pentapharm Limited, one of the Top 100 mid-sized companies. “Many SMEs find compliance difficult since such laws and regulations are developed with serious considerations being put on the large well established organisations.”

The report recommends that SMEs should concentrate their resources on talent, sales and marketing and innovation, and not on upfront capital investment in infrastructure, with bank credit hard to come by. The report says that limited financing has made it difficult for SMEs to open offices in new areas since a lot of capital and time is needed.

The Regus report says SMEs are better placed at managing through downturns than big firms, because they’re more flexible and efficient.

The study also found SMEs are keeping a similar level of optimism to that of large companies. They even show greater ambition in their future sales and marketing plans, the Regus study said. For example, 39 per cent of small companies planned to increase marketing expenditure, compared to 23 per cent of larger companies.

“They are re closer to their customers; there is often more trust between managers and workers, and greater labour flexibility,” says the report.

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