BACKGROUND OF THE STUDY

Small and medium-sized enterprises (SMEs) are the beating heart of the Kenyan economy. They
employ more than three-quarters of the working population in the country and play a key role in
its industrialization and growth effort.
Kenya’s Micro, Small and Medium Enterprises (MSMEs) contribute approximately 40% of the
GDP with the majority falling in the informal sector. 50% of all new jobs are estimated to come
from medium and large companies, despite them constituting only 20% of all firms in the
manufacturing and services sectors. This is according to a World Bank report on High Growth
Firms released this month.
Small-scale businesses display a distinct set of identifying characteristics that set them apart
from their larger competitors.
 Lower Revenue and Profitability. ...
 Smaller Teams of Employees. ...
 Small Market Area. ...
 Sole or Partnership Ownership and Taxes. ...
 Limited Area of Fewer Locations.
Focus on MSMEs in Kenya as a policy priority for Government has been evident since the dawn
of independence. The first real drive towards Kenyan-owned enterprises was highlighted in the
infamous Sessional Paper No. 10 of 1965 on African Socialism and its Application to
Planning in Kenya. This was followed by the formation of the Kenya Industrial Estates (KIE),
established in 1967 as a subsidiary of Industrial and Commercial Development Corporation
(ICDC) with a major role of promoting indigenous entrepreneurship by financing and developing
small scale and micro enterprises.
As the number of locally-owned enterprises increased, they began to mainstreamed in
Government economic planning as a priority sector. This was initiated through the Development
plan of 1974-1978 but concretised through the 1986 Sessional Paper No. 1 on Economic
Management for Renewed Growth which recognised and highlighted the importance of Micro
and Small Enterprises as a means of strengthening Kenya’s economic development. The major
output from this drive was a taskforce paper entitled `Strategy for Small Scale and Jua Kali
Enterprise Development in Kenya’.

This paper was subsequently translated into a policy framework through the Sessional Paper No
2 of 1992 on Small Enterprises and Jua Kali Development. This was the first to exclusively
address small enterprises, defining them as enterprises that employ between 1 & 50 employees.
In this policy paper, the Government acknowledged the negative effects of its tight controls on
the sector, and called for support to the sector by all stakeholders.

The next policy paper on MSME Development came through the Sessional Paper No. 2 of 2005
on Development of Micro and Small Enterprises for Wealth and Employment Creation for
Poverty Reduction. This paper highlighted the constraints to MSME development including
access to information, financial services, land and infrastructure, skills and technology, licensing
and other trade, labour laws, forward and backward linkages. The Sessional Paper proposed how
these constraints could be addressed including a proposal for A Small Business Act which
resulted to the Micro and Small Enterprise Act being passed by Parliament in 2012. This set up
new rules and institutions to support micro and small enterprise development in Kenya.

An important milestone in economic planning for MSMEs in Kenya can be seen through the
Vision 2030. This a long-term development plan that seeks to transform Kenya into an
industrialized middle-income country, providing a high quality life to all its citizens by the year
2030. The MSME sector has been identified and prioritized as a key growth driver for
achievement of the development blue print and has subsequently been incorporated into the
respective Medium-Term Plans.

The most recent advance in Government policy for MSME Development can be seen through the
Kenya Industrial Transformation Programme (KITP). This is an initiative launched by the
Ministry of Industry, Trade and Cooperatives in 2015 and seeks to operationalise the economic
pillar of Vision 2030 through a strategy designed to accelerate the development of industries that
will drive the country’s economic growth. The fifth pillar of this strategy is ‘Develop Kenyan
SMEs by supporting rising stars and building capabilities with model factories’.