Six Ways to Finance Kenyan SMEs Into Global Value Chains

Only 15 per cent of Kenyan SMEs engage in global value chains, mostly because of financial constraints. A KIPPRA policy brief sets out six financing interventions that could close the gap.

The problem in one number

Just 15 per cent of Kenyan small and medium enterprises take part in global value chains, and the gap between those that do and those that do not is primarily financial, not geographic or logistical. Kenya has strong geographic and logistics positioning for global trade, yet most SMEs still produce only for the domestic market.

That is the starting point of a KIPPRA Policy Brief by Kevin Wanjala, now a co-founder of Herufi, and Mohamed Abdulahi, which turns firm level research on the same subject into a short list of financing interventions policy makers could act on directly.

Why finance is the binding constraint

The brief argues that SMEs face a harder version of a problem every exporter knows: entering a value chain requires upfront spending, on production technology, logistics, human capital or the certifications a foreign buyer requires, well before the resulting revenue arrives. Client payment terms often run weeks or months after delivery, which strains SMEs that lack the balance sheet to bridge the gap. Kenya also has no standalone global value chain policy, so SMEs are left to navigate export processing zones and general industrial policy that were not built with them in mind.

Six interventions

The brief sets out six concrete areas for policy intervention:

Capacity building alongside financing. Investment in human capital and on the job training raises the productivity that makes firms competitive enough to be worth financing.

Certification awareness. Government agencies and business membership organisations should jointly raise SME awareness of the international quality certifications that open access to global buyers.

Credit information infrastructure. A functioning credit scoring system would let lenders price SME risk accurately instead of avoiding it, addressing the information gap that keeps SME lending expensive.

Targeted loan subsidies. The brief points to South Korea and Taiwan, where subsidies tied to export performance and channelled through microfinance institutions successfully drew SMEs into global production networks.

Supplier financing for accounts receivable. Because clients often pay well after delivery, financial models that let SMEs monetise receivables would ease the liquidity squeeze that blocks participation.

Research and innovation support. Business hubs, innovation centres and acceleration programmes, paired with technical support that connects SMEs to larger anchor firms, would build the supplier capability foreign buyers look for.

Reading it alongside the discussion paper

This brief distils the same underlying research covered in the firm level KIPPRA Discussion Paper on global value chain participation, which found that firm size, productivity and financing constraints jointly determine participation. Read together, the two make a straightforward case: the barriers to Kenyan SME participation in global trade are identifiable and the interventions to address them are not exotic, they are largely about fixing how SMEs are financed.

Summary of Integrating Small and Medium Enterprises into Global Value Chain through Financial Interventions, KIPPRA Policy Brief No. 19/2022-2023, by Kevin Wanjala and Mohamed Abdulahi, Kenya Institute for Public Policy Research and Analysis. Printed as "Kevin Wafula" on the brief itself; corrected here to match his byline on the related discussion papers. Read the full brief at the link above.