How access to credit is boosting tech adoption, earnings for SMEs

At 60, Esther Ngugi is thriving in the dairy farming business, having embraced modern technology that has revolutionised her operations.

A mother of three, Ms Ngugi runs a dairy farm in Kimeenda, Lari Sub-county, Kiambu County, which she inherited from her late husband, James Ngugi, after his passing in 2019.

Initially, Ngugi struggled with losses due to delayed deliveries of her highly perishable milk products. However, this challenge is now behind her, thanks to a solar-powered milk cooler acquired through the support of KUnity Sacco and the Kenya Development Corporation (KDC).

The cooler has allowed her to store milk safely, even beyond delivery hours, drastically reducing losses.

Ngugi’s challenges were on account of access to funds to enable her to buy equipment such as the milk cooler that can easily reduce losses and increase her earnings at the farm. 

She is not alone and in Kenya, over 7.4 million micro and small business owners face the same challenge. Despite the critical role they can play in job and wealth creation, MSMEs lack access to adequate and affordable credit.

The Kenya National Bureau of Statistics (KNBS) estimates that there are about 7.4 million MSMEs in Kenya that employ over 14.4 million Kenyans across all sectors of the economy. These micro and small businesses contributed about 33.8 per cent to the national GDP, playing a major role in the economy.

The MSMEs however lack access to financing due to the requirements by lenders such as for collateral. This, according to the latest FinAccess report by Central Bank and Financial Sector Deepening (FSD) Kenya, continues to be a major barrier for MSMEs in accessing formal credit.

Formal credit

A May 2024 report by research firm Stears, noted that in Kenya, most MSMEs depend on informal and often unreliable financing channels.

“Despite their outsized economic impact, only 16 per cent of these vital enterprises currently access formal credit. With most MSMEs dependent on informal and often unreliable financing channels, the demand for accessible, affordable credit is high,” said the firm in the report on MSME lending in Ghana, Nigeria, and Kenya.

“This untapped potential could unlock a compelling investment opportunity to support the growth of Kenya’s MSME sector by bridging the financing gap.” KDC has been on a campaign to increase lending to SMEs, including smallholder farmers.

KDC has been advancing money to local banks and Saccos for onward lending to small businesses. The corporation, mandated with providing development finance, was established in 2021 following the merger of three State-owned development finance institutions – the ICDC (Industrial and Commercial Development Corporation), TFC (Tourism Finance Corporation) and IDB Capital. Ngugi currently produces 40 litres of milk daily from her herd of eight Friesian cows and five calves. In the past, she would lose revenue whenever she missed delivery times, but the solar cooler has changed that, ensuring her milk stays fresh until it can be delivered.

“The cooler has been a game-changer for me. Before, late deliveries meant losses, but now, I can store the milk safely and deliver it later,” Ngugi explains.

The cooler not only preserves her milk but also powers other appliances on her farm, including lighting, without adding to her energy costs. Ngugi is now expanding her operations, planning to revive her stalled biogas project, which will provide additional energy for cooking and lighting.

A retired mathematics teacher from Karuri High School, Ngugi had little experience in running a dairy farm when she took over. She faced challenges, including the loss of several cows, and nearly sold the farm. However, with encouragement from her children, she persevered and has since grown the business into a profitable venture.

“I knew little about dairy farming when I started, but over time, I’ve learned and adapted. I’m glad I didn’t give up,” she says.

In addition to dairy farming, she has diversified into poultry to keep herself busy between tending to her cows.

Ngugi has not only received practical farming support but also financial empowerment. The organisations offer farmers soft loans and check-off loans with favourable repayment terms, helping them grow their businesses.

“The partnership with KUnity Sacco and KDC goes beyond farming support. Their financial services, like check-off loans, are easy to repay and come with low interest rates,” Ngugi notes, her mathematical precision from her teaching days still evident in her approach to managing her finances.

She says, that each litre of milk fetches between Sh40 and Sh42, and innovative technologies boost her productivity.

KDC has different facilities that offer small business credit on favourable terms to acquire technology, machinery, and equipment, to accelerate Kenya’s industrial modernisation and enhance competitiveness.

KDC reently received a Sh2 billion credit facility to support SMEs through the Export-Import Bank of India.

It is partnering with banks and Saccos for onward lending to farmers and other small businesses to reduce post-harvest losses, shore up their earnings.