SMEs in Kenya: Meaning, Characteristics & Economic Benefits

February 22nd, 2023 by Felix Cheruiyot

How are SMEs classified in Kenya? What role do they play in the growth of the economy? Read to learn more about SMEs and MSMEs in Kenya.

Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in the growth and development of any economy. In Kenya, MSMEs are an essential component of the economic landscape, contributing significantly to employment generation, economic growth, and development.

This article provides an overview of MSMEs in Kenya, covering the meaning of SMEs in business and their characteristics, types, challenges, economic impact, and what the government and private sector are doing to support them.

Let’s get started.

What are SMEs in Kenya?

In Kenya, an SME is a small business with annual sales lower than Ksh. 1 million. Micro enterprises are businesses with less than ten employees, while small enterprises are those that have 10-49 employees.

A medium enterprise, on the other hand, has between 50-99 employees. These are all different types of SMEs in Kenya, commonly bunched together as micro, small, and medium enterprises (MSMEs), businesses with between 1 and 99 employees and an annual turnover of 50 million Kenyan shillings.

MSMEs play a pivotal role in Kenya’s economy. They contribute to over 90 per cent of the total labour force and help to reduce poverty and grow the economy. SMEs are also a source of innovation, competitiveness and an important outlet for the entrepreneurial spirit of Kenya’s people.

Over 7.4 million MSMEs employ approximately 14.9 million Kenyans in various sectors of the economy, proving how important small businesses are to the national economy.

MSMEs are spread all over the economy, but most operate informally. The critical role of MSMEs in promoting GDP growth and employment in Kenya is underlined by Vision 2030, which is the country’s long-term development blueprint. It’s also encapsulated in the “Big Four” agenda under the manufacturing agenda.

Characteristics of SMEs in Kenya

SMEs are usually owned and managed by individuals or small groups of people who pool their limited resources to start a business. These small ventures typically have an informal approach to operations.

Another important characteristic of MSMEs in Kenya is their level of innovation. Due to their limited resources, MSMEs must be creative to overcome challenges and compete in the market.

This forced creativity puts MSMEs in Kenya at the forefront of innovation, constantly developing new and unique products and services to meet the needs of consumers.

What businesses are MSMEs in Kenya involved in?

MSMEs in Kenya can be found in various sectors, including manufacturing, retail, and professional services. In manufacturing, MSMEs produce products such as clothing, food and beverages, textiles, and household items.

MSMEs in retail operate small shops and stalls selling food, clothing, and household items. In the services sector, MSMEs offer services such as hairdressing, dressmaking, cellphone repair, car repair, and other services.

MSMEs have also proved their worth in terms of value addition, providing an important source of income for families and playing a critical role in providing basic goods and services to consumers.

MSMEs contribute to global competitiveness by introducing new technologies and products to the market. They help enhance consumer choice by providing a range of products and services that meet the needs of different consumers. All these factors combine to make MSMEs an integral part of the Kenyan economy.

How SMEs differ from large enterprises

MSMEs in Kenya differ significantly from large enterprises in terms of their size, resources, and operating style. Large enterprises have more resources, allowing them to operate on a larger scale and have a more formal approach to operations.

On the other hand, MSMEs have limited resources and are forced to operate on a smaller scale, often with a more informal approach to operations.

This difference in resources and operating style can result in MSMEs facing different challenges compared to large enterprises. For example, MSMEs may struggle to access finance or compete with larger enterprises with greater resources.

However, MSMEs can often overcome these challenges through their creativity, flexibility, and innovative approach to business.

Impact of MSMEs on the Kenyan Economy

Job creation

One of the most significant ways in which MSMEs contribute to the Kenyan economy is through job creation. According to the Kenya National Bureau of Statistics, MSMEs employ a chunk of the country's workforce.

Nearly three-quarters of the country's workforce is estimated to be employed by small and medium-sized enterprises. This makes MSMEs a crucial factor in the country's efforts to reduce unemployment.

This highlights the significant role that MSMEs play in providing employment opportunities, reducing poverty, and improving the standard of living for people in the country.

MSMEs create jobs in rural and urban areas of the country, allowing many people access to economic opportunities they would not otherwise have.

Thanks to the employment that MSMEs provide, the Kenyan economy is experiencing an increase in productivity, which, in turn, will lead to long-term growth. This is an important step in creating a more sustainable and prosperous economy for Kenya.

Economic growth

MSMEs also contribute significantly to Kenya's Gross Domestic Product (GDP). Joram Mwinamo, the Chief Executive of SNDBX, projected that the MSME sector will contribute a whopping 50% to the country's GDP in the next three years.

MSMEs are also key drivers of innovation, introducing new products and services to the market and improving the economy's overall competitiveness.

As a result, government and other stakeholders can focus on creating and maintaining an enabling environment for MSMEs to thrive. This includes providing access to finance, developing supportive policies, and offering technical and business development services. By doing so, Kenya can ensure that MSMEs have the necessary resources and support to contribute to economic growth.

Attracting foreign investment

MSMEs also play a role in attracting foreign investment to Kenya. By portraying the country as investment friendly and full of opportunities, MSMEs help attract foreign investors who are looking to invest in a stable and growing economy.

Foreign investors bring valuable expertise and experience in the form of training, technology transfers, and access to global markets. This helps to create an environment where businesses can increase their efficiency and productivity while remaining competitive in the global marketplace.

IntaSend for SMEs

To succeed, MSMEs need a reliable payment provider. It cannot operate successfully if an MSME cannot make it easy for customers to pay or fail to pay suppliers on time.

IntaSend offers financial tools that make it easy for SMEs to pay and get paid. Our platform allows businesses to make bulk one-off and scheduled payments. This allows you to pay suppliers and employees on time, preventing disruptions to operations.

For SMEs that are keen to add another sales channel by establishing an online store, IntaSend offers a payment gateway for both WooCommerce and Shopify. We have other services specifically for businesses that help SMEs pay and get paid on time.

Sign up for IntaSend and join +3,000 other Kenyan businesses and developers that are enjoying a better way to pay and get paid.


Cover Photo by Microsoft 365 on Unsplash

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