Small Enterprises Net Less Ksh240K Monthly – Study

According to a survey, the majority of small businesses in Kenya’s low-income neighborhoods make less than Sh240,000 per month, which lowers employee quality of life.

In a survey by Small Firm Diaries, 75% of small businesses in the country’s low-income neighborhoods generate less than Sh240,000 per month, which is subsequently distributed among employees as pay.

“This level of revenue affects the quality of life for employees, with approximately two-thirds of staff, interviewed reporting they are struggling to have enough money to obtain necessary items for their families,” the report says.

It was found that Kenyan businesses had unstable revenues, with revenue and expenses varying from month to month in unpredictably difficult-to-manage ways.

In a 10-month period, hardly half of the workers at the small company received pay for eight months or longer.

During that time, a fifth of the employees spent less than five months at the same company.

Despite the fact that lack of access to capital is the third most obstacle to business owners’ success goals, many of them claimed they hardly often or never need loans.

The businesses analyzed state that working capital is more important than investing capital when applying for loans.

“They (firms) frequently look to sources other than banks, such as their own suppliers, for loans, and rarely take any operating risk that could result in negative monthly cash flow. These facts help confirm their need for working capital to cover liquidity needs,” says the report.

The survey found that the entrepreneurs it interviewed prioritized stability and development.

Treasury’s plans for expanding the tax base sought to strike the difficult-to-tax informal sector, with a particular focus on MSMEs, in the 2023 Draft Budget Policy Statement (BPS).

“The potential taxable base of the informal sector is Sh2,800 billion as per the MSME survey,” Treasury noted in the report.

A budget of Sh2.56 trillion for tax collection has been allocated to the Kenya Revenue Authority (KRA) for the Financial Year 2023–24, with a target of Sh4 trillion in the medium term.

These businesses experience significant income and spending volatility. The greatest obstacles to attaining their vision of growth and stability, according to the research, are rising costs and supply issues.

Research on three industries—light manufacturing, agri-processing, and services—was carried out by Financial Sector Deepening (FSD) and Financial Access Initiative (FAI).

It was conducted between October 2021 and October 2022 in the counties of Kisumu, Kwale, and Nairobi.

Agri-processing businesses, such as those that prepare food and preserve meat and fish, make up 26% of the businesses in the Kenyan sample. The other 20% of businesses are in services, such as printing and car and bike repair and maintenance.

Despite having the ambition to expand, entrepreneurs encounter numerous obstacles that prevent them from doing so, according to FAI managing director Timothy Ogden.

He called for policies and access to financial tools that will enable them to overcome these challenges.

“We see that these entrepreneurs do have aspirations to grow, and they are dynamic, constantly working toward those goals. But that dynamism often translates into just overcoming the volatility and risk they face, rather than moving them toward achieving their goals. Every time they are able to seize an opportunity, they have to contend with a wave knocking them back particularly because of a lack of liquidity and working capital,” he said.