On 10th December 2019, KEPSA launched the Micro, Small and Medium Enterprises (MSME) Policy Index to provide policymakers and market players with a tool to monitor and evaluate progress achieved in implementing policies meant to support MSMEs.
The tool, developed in 2018, is part of the KEPSA SME agenda and builds on the Kenya Rising Star and Scale-Up programme (KRISP) for SME and Entrepreneurship Development in Kenya that was developed and presented to H.E. President Uhuru Kenyatta for endorsement during the 6th Presidential Roundtable (PRT) in May 2016. The main objective of the KRISP programme was to foster development of a resilient Kenyan economy by supporting SME development, nurturing entrepreneurial culture and expanding opportunities for wealth and employment creation.
KEPSA has previously been involved in efforts to organize the SME sector through formation of Micro and Small Enterprises Federation, and enhancing the regulatory environment through enactment of the MSE Act 2012 – which also set the framework for establishment of the MSE Authority and MSE Fund. On 29th May 2019, KEPSA also hosted a Presidential Roundtable bringing together large producers, SMEs and small traders to facilitate trade linkages and reduce importation of illicit goods.
The MSME policy Index is the first of its kind in Africa and borrows from the best practices in ASEAN countries. It was motivated by KEPSA desire to ensure inclusion of SME policy issues in the business environment reform agenda and that the year on year improvement in Kenya’s ranking on the World Bank’s Ease of Doing Business is being felt by businesses of all sizes across the country.
The Index is based on eight-policy dimensions and outlines recommendations that are highly necessary for MSME development across the policy space, legislation, regulations, programs, and MSME support systems and is intended to support the government in setting targets for MSME policy development by identifying strategic priorities for improving the business environment to stimulate the growth of MSMEs and the entire economy.
The index is drawn from a total of 75 indicators that are relied upon in measuring the extent to which each policy dimension is either supportive or not supportive of the MSMEs. The eight policy dimensions include:
- Enabling governance and business regulatory environment;
- Reliable infrastructure and access to inputs;
- Human capital and entrepreneurial skills development;
- Access to MSMEs financing;
- Effectiveness of MSME representation;
- Supportiveness of framework for business development;
- Market linkages and expansion initiatives;
- Innovation, ICT adoption and technology transfer;
Speaking during the launch of the Kenya MSME Policy Index cum KEPSA Members’ Dinner that was held at Nairobi Serena Hotel, KEPSA CEO Ms. Carole Kariuki said the tool had been used for the first time in Kenya and Africa as a whole, to assess, gauge and rank the MSME policy environment and to determine how the MSME policies influence economic growth and development.
“The tool will help in identifying local and international best practices in facilitating MSMEs growth,” Ms. Kariuki said.
Dr. Chris Kiptoo, the Principal Secretary, State Department of Trade, Ministry of Industry, Trade and Cooperatives applauded KEPSA for launching the tool. “The Index must be applauded as a purposeful tool for interrogating and monitoring progress in policy implementation,” he said.
On his part, KEPSA Head of Policy Research Analysis Mr. Victor Ogalo said that the Index will provide a basis for engaging the government in policy dialogue and exchange of best practices.
“The index will enable stakeholders to systematically and analytically assess the MSME policy space while identifying gaps in both policy development and implementation,” Mr. Victor Ogalo, said while presenting the inaugural findings of the MSMEs Policy Index.
Given the critical contributions of the MSMEs in the economy, the tool will provide credible and scientific ways of tracking and facilitating policy dialogue, program coordination and to promote good practices in the country.
According to the 2017 Kenya Bureau of Statistic (KNBS) data, approximately 1.6 million licensed MSMEs have been established in Kenya providing up to 85% of employment. These enterprises are a key driver towards the achievement of Kenya’s Vision 2030. However, MSMEs only contribute about 20% of the total GDP which signals the lack of correct policy for MSME development in Kenya.
“MSMEs are the bedrock of our economy,” KEPSA Chairman Mr. Nicholas Nesbitt said. “The launch of this instrument is an indication of the focus we have to leverage dividends of small businesses to unlock our economy.”
In the baseline survey that was conducted for one year from 2018, in partnership with Management University of Africa (MUA), Kenya’s MSME Policy Index ranks at 3.0/5, with half of the eight policy dimensions ranking below the neutral index of 3/5.
“The study concludes that Kenya’s MSME policy environment is currently largely not supportive to MSME development and needs to be reviewed and strengthened towards world benchmarks such as ASEAN mean index of 3.7/5,” Mr. Ogalo highlighted.
Reliability of infrastructure and access to inputs (3.38); governance and business regulatory environment (3.30); policy reforms seeking to improve access to SME financing (3.17); and, innovation, ICT adoption, and technology transfer within SMEs (3.06), are some of the dimensions where Kenya has fair favorably.
On the other hand, half of the dimensions including human capital and entrepreneurial skills development (2.98); frameworks for business development (2.87); market linkages and expansion (2.80); and MSME representation (2.50) ranked below the neutral index.
The study targeted registered and licensed MSMEs with 2018 Single Business Permits (SBPs) in Kiambu, Machakos and Nairobi Counties. The three counties were chosen due to their high concentration of MSMEs and their close proximity to each other.
A total of 1,152 MSME owners out of the 118,726 formally registered and licensed MSMEs across the three counties and from diverse sectors of the economy were sampled at county and business category level.
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