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07 Jun
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What are MSMEs in Kenya?

Introduction.

Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in the growth and development of any economy. In Kenya, MSMEs are an essential component of the economic landscape, contributing significantly to employment generation, economic growth, and development. This guide aims to provide a comprehensive understanding of MSMEs in Kenya, covering their characteristics, types, challenges faced, impact on the economy, and the support available from the government and private sector. The goal of the article is to make readers have a clear understanding of what MSME means and the role it plays in Kenya's economic growth and development.

Meaning of SME/MSMEs in Kenya.

Globally, there is no standard definition for Micro, Small and Medium-Sized Enterprises (MSMEs). In Kenya, MSMEs are defined as any enterprise that have between 1-99 employees with an annual turnover of less than 50 million Kenyan shillings. By definition, Micro enterprise has less than 10 employees, Small enterprise has 10-49 employees while Medium enterprise has between 50-99 employees.

MSMEs play a pivotal role in Kenya’s economy. They contribute to over 90 per cent of total labour force and play a key role in poverty reduction and economic development. They are also a source of innovation, competitiveness, goods and services, and entrepreneurial skills.

There are over 7.4 million MSMEs employing approximately 14.9 million Kenyans in various sectors of the economy. In addition, the MSMEs cover a wide range of establishments in almost all sectors of the economy.

It is also worth noting that most MSMEs operate informally. Moreover, the important role of MSMEs in promoting GDP growth and employment is underlined in Kenya’s Vision 2030, the country’s long-term development blueprint and the “Big Four” agenda under the manufacturing agenda.

Characteristics of a MSMEs

  • Usually owned and managed by individuals or small groups of individuals, with limited resources and a more informal approach to operations. This informality is often reflected in their size, with MSMEs usually being much smaller in size compared to large enterprises.
  • MSMEs in Kenya is their level of innovation. Due to their limited resources, MSMEs often have to be creative in order to overcome challenges and compete in the market. This has resulted in many MSMEs in Kenya being at the forefront of innovation, constantly developing new and innovative products and services to meet the needs of consumers.

Read Also: Top Microfinance Institutions in Kenya

What MSMEs does in Kenya

MSMEs in Kenya can­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­ access several sectors, including manufacturing and production, retail among many other services. In the manufacturing sector, MSMEs produce a range of products such as clothing, food and beverages, textiles, and household items. They play a major role in value addition. These businesses often play a critical role in providing employment opportunities and promoting economic growth.

In the retail sector, MSMEs operate small shops and stalls selling goods such as food, clothing, and household items. These businesses are an important source of income for many individuals and play a critical role in providing basic goods and services to consumers.

In the services sector, MSMEs offer services such as hairdressing, medical centres, chemists, tailoring, and car repair services and many others. These businesses play a critical role in providing employment opportunities and generating income for individuals and households as well as making services and products accessible and affordable in the market.

Role of SMEs in Kenya’s economy.

MSMEs play a critical role in Kenya's economy, contributing significantly to employment generation, economic growth, and development. MSMEs provide jobs to a significant portion of the population and play an important role in reducing poverty. In addition, MSMEs stimulate economic growth by providing goods and services to meet the needs of consumers, promoting entrepreneurship, and driving innovation.

MSMEs also play an important role in driving the development of the economy by promoting entrepreneurship and creating new business opportunities. This, in turn, leads to the creation of new jobs, a more diverse economy, and an overall increase in economic growth and development. MSMEs also help develop human capital and drive innovation, which is critical for the sustainable growth of the economy.

MSMEs contribute to global competitiveness by introducing new technologies and products to the market. You won't be surprised to know that MSMEs also enhance consumer choice by providing a range of products and services that meet the needs of different consumer segments. All these factors combine to make MSMEs an integral part of the Kenyan economy.

Comparison of SMEs with large enterprises.

MSMEs in Kenya differ significantly from large enterprises in terms of their size, resources, and operating style. Large enterprises have significant resources, allowing them to operate on a much larger scale and have a more formal approach to operations. MSMEs, on the other hand, have limited resources and operate on a smaller scale, often with a more informal approach to operations.

This difference in resources and operating style can result in MSMEs facing different challenges compared to large enterprises. For example, MSMEs may struggle to access finance or to compete with larger enterprises that have greater resources. However, MSMEs are often able to overcome these challenges through their creativity, flexibility, and innovative approach to business.

Impact of MSMEs on the Kenyan Economy.

a) Job creation

One of the most significant ways in which MSMEs contribute to the Kenyan economy is through job creation. 

According to the Kenya National Bureau of Statistics, MSMEs employ a chunk of the country's workforce. This highlights the significant role that MSMEs play in providing employment opportunities, reducing poverty, and improving the standard of living for people in the country.

MSMEs are creating jobs in rural and urban parts of the country, allowing many people access to economic opportunities they would not otherwise have. Thanks to the high level of employment that MSMEs provide, the Kenyan economy is experiencing an increase in productivity, which, in turn, will lead to long-term growth. This is an important step in creating a more sustainable and prosperous economy for Kenya.

b)Economic growth

In addition to job creation, MSMEs also play a crucial role in driving economic growth in Kenya. By producing goods and services, MSMEs generate income and stimulate economic activity. This leads to an increase in demand for products and services, which in turn drives further economic growth.

Moreover, MSMEs are key drivers of innovation, introducing new products and services to the market and improving the overall competitiveness of the economy.

They also play an important role in promoting sustainable development, providing employment, and contributing to the reduction of poverty. As a result, governments and other stakeholders should focus on creating and maintaining an enabling environment for MSMEs to thrive.

This includes providing access to finance, developing supportive policies, and offering technical and business development services. By doing so, Kenya can ensure that MSMEs have the necessary resources and support to contribute to economic growth.

MSMEs also contribute significantly to the Gross Domestic Product (GDP) of Kenya. Joram Mwinamo, the Chief Executive of SNDBX, projected that the MSME sector will contribute a whopping 50% to the country's GDP in the next three years.

This highlights the significance of MSMEs in the country's economy and the impact they have on economic development. Furthermore, MSMEs are also a major source of employment, providing jobs to millions of Kenyans.

It is estimated that nearly three-quarters of the country's workforce is employed by small and medium-sized enterprises. This makes MSMEs a crucial factor in the country's efforts to reduce unemployment. Moreover, MSMEs play an important role in providing affordable goods and services to wider sections of the population.

c) Foreign investment

MSMEs also play a role in attracting foreign investment to Kenya. By creating a favourable business environment, MSMEs can attract foreign investors who are looking to invest in a stable and growing economy.

Foreign investment not only brings in capital but also contributes to job creation, technological advancement, and further economic growth. Foreign investors bring valuable expertise and experience in the form of training, technology transfers, and access to global markets. This helps to create an environment where businesses are able to increase their efficiency and productivity while remaining competitive in the global marketplace.

Credits: Felix Cheruiyot, IntaSend.

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