SME Financing in Kenya
Grind Group Ltd founder and director John Batista. His SME is making strides in supplying Information Technology equipment parts such as printer gears, films, and rollers among other essentials.

Owners of small businesses in Kenya seeking loans to help with their daily grind have found that a majority of banks are reluctant to lend to the sector.

And with the economic fallout occasioned by the pandemic and now high inflation to grapple with, running an SME can oftentimes become a nightmare.

John Batista’s journey as an entrepreneur has been a roller coaster. Upon retrenchment in 2010, he ventured into supplying Information Technology equipment parts such as printer gears, films, and rollers and for a couple of years, Grind Group Limited had a fairly good run.

“In 2015, we started experiencing problems. Our main clients, the corporates, were delaying our payments even for over three months. Our suppliers stopped giving us goods. We could hardly move on,” Mr Batista told Maudhui.

Amid the struggles, his outfit which by 2018 had five employees was shutting doors weighed down by a Kes2 million shortfall in revenue. “I needed a miracle to survive,” he said.

And whereas some local banks extended credit lifeline, they soon grew weary of providing the necessary financial support to the SME to meet the unique demands of a growing list of corporate clients largely because he did not have collateral to secure a big loan.

Every cloud has a silver lining as it was at the height of his SME turmoil in 2018 when he was introduced to Absa Bank Kenya by a friend. Then, Absa and Mr Batista had a common client in the health sector. On account of his transactions with this client, the bank informed him that he could access up to Kes30 million credit.

However, it took the former IT employee three more years to engage Absa, this time, having exhausted all hope of salvaging his SME fortunes with other banks.

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“As I renewed my 2021 New Year resolutions, I decided to go to Absa. They asked me for my bank statements for one year. On the same day, they told me I can get a Kes6 million loan within six months. They also introduced me to my SME manager,” he said, adding that the bank went further to buy over a Kes1.2 million loan that was stretching his revenues thin.

With Absa’s mentorship and counsel, Grind Group went on to seal new lucrative deals, transacting over Kes100 million in just six months. In December 2021, the SME which primarily relies on referrals for sales received a Kes3.5 million loan from the Pan-African lender.

“Absa was just a blessing for me. I also changed my business strategy, only directing 10 percent of my sales volumes to corporates and 90 percent to resellers (wholesalers),” Mr Batista, who started with Kes100,000 seed capital said.

With the fresh capital, his business now started paying suppliers on time and he revised terms to a cash basis or 21 days for credit agreements.

“With their financing, I can import more goods and sell them on time. I can also buy goods locally and pay promptly,” said the trader, who in the past had seen a lot of deals fall off due to lack of financing.

In May, this year, Absa increased the loan to Kes8 million, which Mr Batista is using to replenish stocks and has opened a second shop. He’s confident that he’s on course to the Kes30 million financing mark from Absa. This new Kes5 million loan (top-up) is unsecured.

“I used to inform bank managers that getting financing is the biggest challenge facing SMEs in Kenya today. They are struggling because of their inability to provide loan securities. Even if the interests are high, they are better than going to shylocks,” he explains.

Absa Bank is providing a growing pool of SME customers with business insights, and linkages necessary for growth over and above managerial expertise tips on how to transform their investments into success stories.

Absa Bank Director Business Banking Kenya Elizabeth Wasunna in one of the conferences which the Pan African lender conducts seeking avenues for partnership with SME owners, including women in business, to help small business investors turn their dreams into realities.

“Absa is coaching SME owners on how to keep good business records. My wife, who is in a similar business model to mine, is a good example. Within six months, her business has transformed a lot because of the bank’s training and mentorship.”

The lender offers women in business unsecured loans of up to Kes10 million, payable over five years for existing clients, and Kes7 million for new customer loans payable in four years.

He counsel’s SME owners to keep audited books of accounts and file their returns as “this keeps you in good books with both banks and the regulators.”

“Know how to manage your company. For instance, get a system to help manage your inventory, staff, creditors, debtors, statutory payments, cash flow, etc. Without such in place, it turns out you are just surviving,” he noted.

The entrepreneur equally credits his success to SME training offered by Absa and advises starters to stick to the business lines in which they have the right set of skills besides their passion.

“We get overexcited. We become over ambitious and tend to go for new businesses instead of building upon what we know. Also, as you do your business, remember to save.”

Under the bank’s Wezesha Biashara program, Absa provides tailor-made financing products for SMEs and MSMEs, and hosts industry conversations with founders to identify relevant solutions that can help drive growth.

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