"Without loans, I would not have got this far," Diana Wangui, a hairdresser in Nakuru, says. Every Friday, she pays Sh5,000 to service her loans. It's tough, considering she also has to pay the rent for the business premises, rent for her home and pay her assistant.
Wangui has been surviving on these loans for almost five years now. Whenever she clears one loan, she applies for another. "I use these loans to stock up on new products that I sell in my salon," she says. She gets her merchandise from wholesalers in Nairobi.
The salonist's experience confirms newly released findings, which show that most Kenyan businesses borrow money to boost their working capital rather than for new investment. 43 per cent of respondents in a survey of 155 small businesses said they took loans to expand their stock of products. 26 per cent said they borrowed money to buy inputs in advance, while 11 per cent said they borrowed to address cash flow issues.
The survey was conducted by Small Firm Diaries, a global research project that focuses on seven countries, including Kenya. The small businesses selected for the survey had between one and 20 non-family employees.
Commercial banks, micro-finance institutions and mobile banks were the most cited sources of loans by owners of the small businesses. Other sources of money included borrowing from family and friends, informal groups and digital loan apps. Only 4 per cent of the businesses reported borrowing from informal money lenders (shylocks).
Among the reasons why small and micro enterprises need to boost their working capital are fluctuations in revenue and expenses. In the current economic circumstances, many businesses are finding it hard to predict income and expenses.
UNEXPECTED COSTS
Wangui, for example, recently had to find money to repaint the outside of her salon as it still had mobile money branding from the previous tenant. She does not do mobile money business, but county government askaris would see the branding and demand she get an additional business licence for it. The repainting cost her money she had not budgeted for.
Unpredictable fortunes affect employees. 75 per cent of businesses that took part in the survey make less than Sh240,000 a month. The revenue may seem a lot for a small business, but the money goes to many other expenses apart from salaries. Only half of the employees in the sampled businesses got paid 8 months or more in a 10-month period. Approximately two-thirds of staff interviewed said they were struggling to get enough money for their families.
An interesting development is supply chain finance. This is where businesses and suppliers have "buy now, pay later" arrangements. 21 per cent of businesses reported getting loans from suppliers. Most said taking goods and paying later ensured they got what they needed quickly while strengthening their business relationship with suppliers.
These are just a few of the ways businesses are evolving with the circumstances in Kenya. With jobs being very hard to come by, most business owners, such as Wangui, have no choice but to make their businesses thrive.
