Reviewing the Effectiveness of Key Government Development Financing Initiative.

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By CPA Samuel Gikonyo Maingi

Development financing initiatives are strategies that the government and the private sector come up with in order to fill the financing gap. Access to finance has been identified as a major constraint facing both the public and the private sector, especially Small and Medium Enterprises (SMEs), in Kenya. On the public sector side the National and County governments, being the main initiators of development, face financing challenges to implement projects that are meant to uplift the standards of living of the Kenyan people and make the country attractive to investors.

On the other hand the private sector SMEs has emerged as a major employer and therefore compliments the government efforts in the field of employment creation.A world bank study found that about 90% of SMEs surveyed stated that credit was a major constraint to new investment, Parker (1995). Levy (1993) also found that there is limited access to finance available to SMEs compared to larger organizations. The consequences are low growth and development.It is therefore in the interest of the government to come up with policies that increase credit to SMEs and thus allow them to thrive in their areas of business.

Financing is required for the projects that meet specific objectives, e.g. Infrastructure improvement which include road, railway and air transport. Affordable housing, Construction of new health facilities and expanding the existing ones. Also energy and power distribution which includes connecting majority of the population to the national grid, bringing down the cost of energy to competitive levels so that our industries can remain competitive in the global market. Provision of other amenities such as clean drinking water, quality education and promotion of sports, promotion of entrepreneurship in the country through funding of start- ups and existing SMEs.

The following are some of the various development financing initiatives that have been employed and implemented in Kenya now and in the recent past.

Infrastructure Bonds

Kenya has successfully issued infrastructure bonds since the year 2009. The first bond was issued in February 2009 and raised Ksh.18.5 Billion. It was a 12 year fixed coupon bond. The funds were for projects under the following sectors; Roads, Water, Sewage and Irrigation, and Energy. The second bond was issued on the 1st March, 2010 and raised Ksh.14.5 Billion. These bonds are issued in the domestic markets as per the regulations contained in Internal Loans Act Cap 420 and Capital Markets Authority Act Cap 485A.

Constituency Development Fund (CDF)

By decentralizing the CDF which was established by the CDF Act, 2003 the Government has been able to assist those pupils from poor families to achieve their dreams of education. This fund aims to control imbalances in regional development brought about by partisan politics and targets projects aimed at combating poverty at grassroots level.

Youth Enterprise Fund

Youth Enterprise Fund was established in December 2006 as a strategic move to arrest unemployment among the youth by financing the youths and providing them with business development services. Many youths have benefited from this Fund across the Country.

Women Enterprise Fund

The Women Enterprise Fund was also conceived by the government in December 2006.The underlying principle of the fund was to establish a revolving fund and subsequently reduce widespread poverty among women.

Rural Electrification Fund

The Rural Electrification Fund was established in 1998 through sections 129&130 of the electric Power Act (1997).The Fund aims at financing electrification of rural areas. This Fund has really been effective because many homes have been connected with Electricity.

Biashara Fund

This fund was initiated by Chief Administrative Secretary, Ministry of Public Service and Gender, Hon. Rachel Shebesh on Monday, 1st February, 2021 when she met with the National Assembly Committee on Delegated Legislation chaired by Hon. Kassait Kamket in Mombasa to discuss the draft Public Finance Management (Biashara Fund Kenya) Regulations 2020.

The Kenyan Government is in the process of amalgamating Youth Enterprise Development Fund, Women Enterprise Fund and Uwezo Fund to create Biashara Fund. The aim is to enable efficiency and objectivity in disbursement as well as save the taxpayers unnecessary operational expenses incurred in running the three Funds independently.

Under Biashara Fund, Women, Youth and Persons Living with Disabilities will be eligible for loans if they are in a registered group.Therefore the fund will be helpful to a numberofKenyanswhowillbeeligible to access the fund.

Higher Education Loan Board (HELB)

The Higher Education Loans Board (HELB) is a statutory body established in July 1995 by an Act of Parliament ‘Higher Education Loans Board Act’ Cap 213A.It is a state corporation in the Ministry of Education. Education can be quite expensive but through HELB students loans there’s now a smarter way to finance studies. This fund has been so helpful to the needy students willing to pursue their studies in Institution of Higher learning.

Hustler Fund

The Hustler fund (Financial inclusion Fund) is a digital financial inclusion initiative that was rolled out on 30th November 2022 by the President of Kenya H.E William Samoei Ruto.This fund is designed to improve financial access to responsible finance for personal, micro, small, and medium-sized enterprises (MSMEs) in Kenya. This was one of the manifesto by Kenya Kwanza Alliance during campaigns whereby they promised Kenyans to unveil the said fund when they win the Presidential elections and get hold of the Government.

The fund is important because it provides access to responsible finance for personal, micro, small, and medium-sized enterprises (MSMEs) by innovating, developing, and deploying bottom-of-the-pyramid financial services and products that are affordable and accessible.This can be said to be the latest Government financial initiative to individuals and MSMEs.

It is noted that;

Since 1963, Kenya has pursued development that has focused on eradicating hunger, illiteracy and diseases.Kenya ushered in a new political and economic governance system with the passage of a new constitution in 2010 that introduced a bicameral legislative house, devolved county government, a constitutionally tenured judiciary and electoral body.

Kenya has made significant political and economic reforms that have contributed to sustained economic growth, social development, and political stability gains over the past decade. However, its key development challenges still include poverty, inequality, climate change, continued weak private sector investment and the vulnerability of the economy to internal and external shocks.

On Strengthening the Monetary Policy Framework and Safeguarding Financial Stability the CBK’s accommodative monetary policy stance remains appropriate. The CBK’s measures to ease market liquidity pressures have been consistent with the central bank’s medium-term inflation target of 5 percent while ensuring the continued good functioning of domestic capital markets.

The Government has ensured that the exchange rate has continued to be allowed to function as a shock absorber with foreign exchange interventions used only to minimize excessive volatility.The devolved county government has assisted many businesses because they are able to monitor the business in county levels.

Therefore the Government has played its game well to ensure that development financing initiatives in Kenya has grown since independence to date but still needs to come up with more strategies in order to fill the financing gap.


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