When the first case of COVID-19 was detected in Kenya in March 2020, it marked the start of a long journey of business uncertainty, disruption and great anxiety for entrepreneurs of all categories. It was especially difficult for micro and other small businesses, which traditionally lack cash reserves or multiple income streams, to amortize them during the economic downturn. While some companies have managed to stay afloat, hundreds of others have faced serious difficulties that have led to their closure or a severe reduction in operations.
A World Bank study released in January 2021 found that small and micro businesses were hit harder by the pandemic than large businesses, and that these small businesses were often forced to shut down permanently or temporarily compared to large businesses. . In addition, a larger drop in sales was observed for micro and small businesses. Without some form of outside help, most businesses were not resilient enough to survive the recession.
Recognizing the devastating effects of COVID-19 on businesses and families in Kenya, the Mastercard Foundation launched the COVID-19 Recovery and Resilience Program (CRRP) to help micro-small and medium-sized enterprises (MSMEs) respond and to withstand the impact of a pandemic while strengthening their long-term resilience.
The CRRP has provided secured and interest-free loans in several categories to companies in different sectors. He also offered training and other supports to enable them to use the funds wisely and manage risk during the pandemic. It primarily targeted businesses run by women and young people in all sectors, including wholesale and retail, clothing and fashion, and agriculture. Borrowers accessed the facility on request through their member association and had to go through screening and due diligence procedures before a loan was granted.
The program was implemented by a consortium led by Grassroots Business Fund (GBF) and included Cardno Emerging Markets and microfinance, 4G Capital, as well as the Kenya National Chamber of Commerce and Industry (KNCCI); Kenya Private Sector Alliance (KEPSA); and WomenWork Network (WWN) and Cardno coordinated the applications and the necessary due diligence. 4G managed the disbursement of loans to successful applicants and collected repayments.
The program was completely digital and all requests, evaluations, disbursements, reimbursements as well as training were carried out virtually. A unique aspect of the program was the rapid turnaround time from design to deployment due to the urgency of the situation and the fact that it was entirely virtual in response to the constraints imposed by the COVID outbreak. The program created new digital channels to reach MSMEs and took advantage of existing channels such as MPESA.
As of June 2021, over KSh 686 million in loan capital had been disbursed to approximately 21,000 borrowers by the program. About KES 270 million had been repaid by that time, with a balance of KES 416 million overdue. In addition, the CRRP supported nearly 43,000 jobs, of which 44% or 8,700 were held by young people and 84% or 16,500 by women.
The implementation of the CRRP offers several lessons that can be applied to successfully run similar programs:
- Working through business networks has made it possible to reach many entrepreneurs in the target groups (mainly young people and women) across Kenya quickly and efficiently: Collaboration with the three professional associations (KNCCI, KEPSA, WWN) made it possible to reach these target groups. Applicants had to be registered members of one of the three organizations and their company had to be at least six months old.
- Be flexible and react quickly to emerging challenges: For example, when it emerged that some loan recipients were having difficulty repaying due to unforeseen and prolonged lockdowns throughout 2021, the consortium and member associations responded by providing more targeted education and communication to borrowers. to improve repayment. Where appropriate, the program also extended loan repayment terms.
- Ongoing customer education and communication was essential to increase awareness and compliance: The consortium used several approaches to engage applicants, choosing methods accessible to their members such as SMS and WhatsApp messages. This made it possible to raise awareness and increase the number of candidates. Ongoing dialogue with loan recipients has also helped improve repayment rates.
- Training potential borrowers before loan applications and after disbursement is a crucial part of MSME loans: As the program rolled out loan disbursement, it became evident that MSMEs needed training and capacity building before obtaining the loans to ensure that the money was received. used wisely.
- MSME funding must extend beyond the COVID period: MSMEs are chronically underfunded. A 2016 study by the Kenya Bankers Association found that insufficient capital and the cost of credit were key factors hampering the growth of SMEs and that only 17.4% of traditional bank loans in Kenya went to MSMEs. The sector is still considered risky by traditional financial markets. According to IFC, MSMEs in Kenya are estimated to face a funding gap of US $ 19 billion. We need more innovative and commercially sustainable models to fill this gap and fully harness the potential of MSMEs.
- It is essential to create forums that allow micro and small entrepreneurs to exchange ideas and learn from each other’s experiences: The CRRP organized sessions where business owners could share their industry experience in the context of the pandemic. This provided peer learning on what worked and what could be adjusted for the sustainability of the business.
Looking to the future: As Kenya enters a post-COVID recovery phase, micro and small businesses remain vulnerable and need the support of other partners. Other MSME lenders can bridge the gap and help accelerate business recovery by providing flexible and affordable products to this critical industry. The COVID-19 recovery and resilience program experiences and lessons learned can inform the design of similar programs to enrich their impact. This is a call to arms. The CRRP has proven that by working in partnership, we can protect this vital sector of our economy, encourage it to prosper, be adaptive, sustainable and profitable.
Distributed by APO Group on behalf of The Mastercard Foundation.
About the Mastercard Foundation’s COVID-19 Recovery and Resilience Program:
The Mastercard Foundation’s COVID-19 recovery and resilience program has two main goals. First, provide emergency support to health workers, first responders and students. Second, to strengthen the various institutions that constitute the first line of defense against the social and economic consequences of this disease. These include universities, financial service providers, businesses, tech start-ups, incubators, government agencies, youth organizations, and non-governmental organizations.
To learn more about the Mastercard Foundation’s COVID-19 Recovery and Resilience Program, please visit https://bit.ly/3F8eXbv/.