Reduce internal borrowing to boost SMEs

SMEs

When the government borrows more locally, the money which the SMEs depend on for development declines.

Photo credit: File | Nation Media Group

The growth of SMEs is crucial to the development of any country. In Kenya, it is estimated that businesses contribute to more than 24 per cent of gross domestic product (GDP). That means the government should ensure their growth is not hampered as they are a source of livelihood for many citizens.

One way the government can encourage the growth of SMEs is by reducing internal borrowing. When the government borrows more locally, the money which the SMEs depend on for development declines. Thus, the private sector is stifled. Banks and other financing bodies are forced to lend more to the government.

The reverse happens when the government cuts borrowing as the financial institutions tailor their products to significantly fit the needs of SMEs. This proves to be a good way of lifting up the economy. Further, when the government borrows, more locally, interest rates go up, which is a problem for many citizens.

Borrowing further makes the public debt to increase massively, which only spells doom for the citizens as they always have to shoulder the burden of repayment. And with huge debts, the government normally moves to raise taxes and levies in an attempt to offset the monies.

On the other hand, borrowing externally benefits mainly foreigners as the locals shoulder the burden of repaying loans. The aim of borrowing should be to make life more feasible for the citizens instead of making them shoulder a heavy tax burden.

Public borrowing can cause a very high degree of inflation in the country as the government may choose to print more money to cover the borrowed money.

This is not a situation we would like to find ourselves in during this electioneering period, hence the need to avoid it at all costs.

The government has reiterated its commitment to the financing and, subsequently, promotion of small businesses. Avoiding to borrow within can achieve that. Giving banks an opportunity to have more money to lent to SMEs can only bring good tidings to the economy as opposed to borrowing by the government.

The government cannot employ everyone, which makes the private sector key. The million jobs created by the SMEs justify how important promotion and creation of an internal environment for them is crucial for economic growth.

Yvonne Ntinyari Muthuri, Meru

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A thriving MSME sector is essential for job creation and lower prices. The government has expressed its quest to support small businesses in the areas of value addition and increased productivity, especially in the agriculture sector.

It should introduce incentives aimed at revamping the local industry, taking advantage of these incentives for accelerated investment opportunities in all sectors.


Young Maranga, Kiambu

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