The Micro Small and Medium Enterprises Survey 2016 which was conducted by the Kenya National Bureau of Statistics (KNBS) took a different approach in its study. This is the first time that it includes findings from the informal economy. The previous Micro and Small Enterprise studies used the household-based approach to identify businesses establishments. However, the 2016 Micro Small and Medium Enterprises (MSME) survey, in addition to the household-based approach, interviewed businesses establishments identified from business registers maintained by county governments. In total, about 50,000 MSMEs were sampled for the survey, targeting licensed businesses. A further 14,000 households were sampled targeting to capture household based enterprises which are largely unlicensed.
The survey established that there were about 1.56 million licensed MSMEs and 5.85 million unlicensed businesses. Licensed micro establishments reported spending 45.3 percent of their net income on investments, either as re-investment or investing in new businesses and investment in agriculture, while expenditure on household and family needs accounted for 44.5 percent. Most of the unlicensed establishments were being operated at the household level. The survey further indicates that the wholesale and retail trade and; repair of motor vehicles and motor cycles accounted for more than half of the total persons working in MSMEs (over 8 million).
The largest source of funding for start-up capital for businesses that were surveyed was personal and family funds. 46 percent of businesses in this category shut down after one year in operation. A shortage of operating funds was the main factor that caused most of these establishments to close down. Further, the main reason for the low uptake of loans by both licensed and unlicensed businesses was that 62 percent of licensed and 46 percent of unlicensed businesses saw no need to take up loans to finance their operations. This brings up the issue of a need to educate and train these enterprises on the importance of sustainable financing as a means to growing their businesses.
A lot more still remains to be done in terms of fully capturing the informal sector. Data from Kenya’s Economic Survey indicates that the informal sector contributes 82.7 percent of employment in the country, yet this survey indicates that unlicensed enterprises account for 57.8 per cent of those employed. A large percentage (25 percent) of these was not captured as they do not exist in the business registers that are maintained by county governments, which was their main source inclusion of businesses that were surveyed. The fact that most informal businesses in the informal sector operate without licences means that a big proportion of them were automatically excluded.
Lastly, the survey concluded that the biggest proportion of net income generated by MSMEs is injected back into the business as re-investment and also spent to meet household and family needs. In as far as the informal sector is concerned, most businesses are set up primarily as a means of self-sustenance. This is the main reason why almost more than half (46 percent) of the businesses closed shop after one year in operation. In order for the businesses to grow and transit from micro to small and small to medium, there is need for increase savings and re-investment by ploughing back the income. This will not be achieved unless more effort is geared towards poverty alleviation. This will in turn increase the amount of disposable income that can be reinvested in informal businesses in a way that enables them to grow sustainably.
Informal Economy Analyst