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Place of SMEs in Kenya’s 2020/21 Budget

The Cabinet Secretary National Treasury and Planning, Amb. Ukur Yatani presented Kenya’s 2020/21 budget of Sh2.7 trillion to the National Assembly on Thursday, June 11 out of which 56.6 billion has been allocated to facilitate the post Covid recovery strategies.

Kenyan Small and Medium Entreprises (SMEs) have been hard hit by the Covid 19 pandemic, with many projected to close business by the end of June 2020 according to the Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge.

How do SMEs stand to gain from the 2020/21 budget?

During his submission to parliament, Amb. Ukur Yatani stated he had set aside Sh3 billion for the Credit Guarantee Scheme to enable the issuance of affordable credit in an efficient and structured manner in a recovery bid for the sector.

“Mr Speaker, the third theme targets to support Micro, Small and Medium Entreprises. Despite their important contribution, this sector has continued to face challenges of accessing credit, due to lack of sufficient collateral; high cost of credit and informal business structures,” the Treasury CS said. “These challenges have been worsened by the Covid 19 pandemic.”

Credit Guarantee Scheme

Amb. Yatani noted that with reduced turnover and disruptions in the market and supply chains, many Micro, Small and Medium Entreprises are unlikely to attract affordable and quality credit under the traditional arrangements.

“In order to de-risk lending to the Micro, Small Medium Enterprises, I have set aside Sh3 billion seed capital to operationalize the Credit Guarantee Scheme,” Amb. Yatani stated.

He further observed that the Treasury is actively engaging a number of Development Agencies who apparently have shown willingness to commit additional resources in boosting the scheme.

The Treasury additionally intends to fast-track the payment of outstanding verified VAT refund claims and pending bills owed to businesses in its Sh10 billion and Sh1.3 billion allocations respectively. The exchequer may withhold further financing from government departments with pending bills unless the affected departments submit their pending bills payment plan.

While reading Kenya’s 2020/21 Budget statement in parliament, the CS directed prompt payments of contracts for enterprises owned by women and people living with disability to support their success.

Further, Sh600 million have been allocated for the purchase of locally assembled vehicles under the Buy Kenya Build Kenya policy whereas another Sh712 million was put aside to provide credit to SMEs in the local manufacturing sector.

Of the Sh111.7 billion allocated to the health sector, Sh500 million have been earmarked for the supply of 20,000 locally made beds and beddings to hospitals across the country.

Businesses importing raw materials for local manufacture of baby diapers will enjoy a duty-free window as well as those bringing in material for assembly and manufacture of cell phones.

Kenya thrives on the wheels of Small and Medium Enterprises (SMEs) currently estimated to be contributing at least 45 per cent of Kenya’s GDP and 86 per cent of employment opportunities.

Other measures proposed in Kenya’s 2020/21 Budget include encouraging banks to give concessionary loans at low rates to facilitate businesses, as well as providing moratoriums on loans that are due.

Since the beginning of the Covid 19 pandemic in the country around March 2020, banks have restructured loans in excess of Sh360 billion; including Sh190 billion of personal loans.

Commenting on the Treasury plans, Kenya Association of Manufacturers (KAM) CEO Phyllis Wakiaga said “Credit Guarantee Scheme will de-risk the commercial sector. We are working at our SME hub to ensure SMEs are ready for financing when the opportunity arises.”

The KAM CEO, however, expressed reservations on the introduction of minimum tax and corporate tax on businesses. She said adding minimum tax and corporate tax will put a strain on businesses, especially SMEs who are already struggling; adding ” Delayed payments by governments and even retailers in the private sectors deals a major blow especially on our SMEs Is something that we need to address.”

Amb. Yatani had announced the lowering of Turnover tax from 3% to 1.3% in a bid to support SMEs pull through the existing difficult times.

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