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SheTrades: Promoting SME competitiveness in Kenya

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SheTrades: Promoting SME competitiveness in Kenya

SheTrades: Promoting SME competitiveness in Kenya
Photo credit: Mobisol

Women play a vital role in Kenya’s economy. They make up almost half the labour force, and studies show they invest more of their income than men do in the education, health and nutrition of their families and communities. Kenyan women, however, remain on the margins of business ownership. Only 9% of firms in Kenya are majority women-owned, and barriers continue to stifle their growth.

To better understand these barriers, ITC’s SheTrades Initiative project for the Economic Empowerment of Women in Indian Ocean Rim Association (IORA) countries studied the challenges faced by women-owned micro, small and medium-sized enterprises (MSMEs) in Kenya’s services sector.

In 2016, ITC deployed its small and medium-sized enterprise (SME) Competitiveness Survey among 90 women-owned and led firms in Kenya. Drawing on a wide range of research as well as first-hand accounts, this report focuses on the barriers to growth for women-owned MSMEs in Kenya in terms of firm capabilities, the business ecosystem, and the national policy and regulatory environment. This study examines difficulties including securing access to finance as well the role of certification bodies, intellectual property laws, and trade and investment support institutions (TISIs).

Women tend to own and lead smaller firms

The proportion of women in the labour force in Kenya has gradually increased over the last 30 years. Today, women make up 47% of the labour force. However, only 9% of firms are women-owned, and women tend to own smaller firms. Only 3% of large businesses are owned by women compared to 15% of small enterprises. The average size of women-owned firms is 25 persons compared to 46 persons for men-owned firms. Women-owned enterprises in Kenya also tend to be concentrated in specific sectors such as food and beverage services, and other generally low value-added activities. As such, womenowned firms account for only 20% of Kenya’s gross domestic product (GDP).

Women-owned firms in the informal sector

Many women-owned firms operate in the informal sector. Informality brings with it a host of disadvantages that stifle the growth of small firms. Businesses operating in the informal sector are often ineligible for internationally funded, capacity-building programmes or technical assistance provided by public and private support institutions. Similarly, unlicensed firms often have problems securing public procurement contracts, and entering global trade networks.

Kenya should consider introducing tailored incentives to encourage women to register their businesses. This could take the form of tax breaks, capacity-building programmes, reducing the cost of registration, or other benefits. TISIs focused on women could be enlisted to help register these firms. In India, for example, the Self-Employed Women’s Association successfully registered 3,500 self-employed women, bringing them into the formal sector.

Barriers to loans for women-owned firms

Financial institutions use a mix of credit history, business performance, collateral and interest rates to offset the risk of any new loans. Banks often adopt a risk-adverse stance towards smaller firms, and ask for large amounts of collateral. As a result, many MSMEs find themselves trapped and unable to grow. Women-owned firms are less likely to get a loan than men-owned firms, and find it difficult to use movable assets (e.g. light machinery) as collateral.

Establishing a central electronic collateral registry can help reduce the costs for banks. Such registries automatically track and verify the ownership of movable asset used as collateral. Establishing good relationships with banks was one of the strongest determinants of whether or not a firm had its loan application approved. Technical support programmes, which build relationships between women entrepreneurs and banks, may be key to unlocking new sources of finance. Reforming inheritance law may also help. In Kenya, female and male spouses do not have the same inheritance rights. This inequality can make banks reluctant to lend to women, as they may not end up owning property put up as collateral upon the death of their partner.

Improving certification bodies

Standards and regulations play an important role in international trade. Any MSME seeking to export will have to meet at least one standard or regulation. However, becoming certified can be difficult. Firms must learn about various standards, select one that will add value to its product, and implement the necessary changes to become compliant. ITC’s survey shows that most women-owned MSMEs do not find certification bodies and standards authorities to be effective. Only around a quarter of micro and smallsized enterprises gave certification bodies a high rating in terms of their efficiency.

One way to encourage improvements is by harmonising standards with regional neighbours and signing Mutual Recognition Agreements. Such efforts often force standards authorities to undertake intensive reforms that improve their efficiency. For MSMEs, sector associations as well as TISIs, are well placed to help firms become compliant with international standards. Special women-only trainings may result in more women-owned MSMEs engaging in international trade.

Access to information on intellectual property protection

ITC’s survey shows that women-owned MSMEs in Kenya lack a good understanding of international intellectual property (IP) procedures. Yet, improving the protection of intellectual property rights helps increase innovation and foreign direct investment (FDI). Kenya ranks poorly in international indices of Intellectual Property Rights (IPR) enforcement, but does comparatively well regionally.

Reforming the application process for patents and trademark registration in Kenya is needed to encourage more MSMEs to protect their IPR, and help stimulate innovation. The government should consider deploying public funds to help research institutions, individuals, or private sector firms with the application process. Such an approach has been credited with increasing the number of patents in South Africa under the Support Programme for Industrial Innovation. Furthermore, the government should consider turning Kenya’s leading innovators into ‘innovation ambassadors’ to raise awareness of the role of IP for innovation.

Ensuring women-owned businesses have access to information and communications technology

Most of the surveyed women-owned firms have a business website, but they also reported being dissatisfied with the quality of their Internet connection, the price of which has been steadily increasing over the last decade. Kenya has made considerable investments in fibre optic cables to improve the country’s broadband availability and connectivity. While speeds may rise, so may costs.

It is therefore important the government encourage a competitive market to keep costs down, and ensure that the benefit from these new technologies does not accrue only to larger firms. MSMEs are particularly sensitive to large fixed costs and women-owned MSMEs more so due to their smaller size.

Improving support from trade and investment support institutions

Survey findings indicate the quality of services provided by private and public TISIs is inadequate; only 17% of small enterprises gave strong ratings to the quality of services provided by these institutions. TISIs can play an important role in setting the norms of any business ecosystem. If TISIs are better able to link to the firms they serve, and provide the services they require, businesses will be more competitive, both domestically and internationally.

Often, TISIs are not cognizant of the gender dimension of doing business and the specific needs of women-owned MSMEs. Women-focused TISIs should therefore be supported to advocate on behalf of women entrepreneurs, and help address the bottlenecks faced by women-owned firms.


Download: SheTrades: Promoting SME Competitiveness in Kenya (PDF)

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