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The Authority held a stakeholder workshop on Tuesday 13th June 2017 in partnership with the World Bank to introduce a project financing tool based on invoice discounting. The tool will provide a platform to enable SMEs to buy inputs at credit and to finance their invoices to project sponsors. The solution tracks and monitors the status of projects on a daily basis and provides financiers insights into the progress and risk indicators. This supports financiers to make key lending decisions and avoid bad debts.
The project comes at a critical time in the construction industry as Infrastructure is key to Africa’s economic turnaround, and will play an even greater role in the continent’s continued development. Kenya in particular is making giant strides in infrastructure and urbanization.
According to the Economic Survey 2016 Construction recorded the fastest growth of 13.6 per cent in 2015 compared to 13.1 per cent in 2014. Growth in construction activities was mainly driven by the ongoing public infrastructure development coupled with the resilient private sector’s expansion in the real estate sector. Formal employment in the sector grew by 11.4 per cent to stand at 148.0 thousand in 2015 up from 132.9 thousand in 2014.
Despite the industry’s potential and contribution to the socio-economic transformation, the industry continues to suffer from various challenges the most rampant being money; Capital has been outlined as one of the major challenges faced by contracting firms in the sector thus reducing their operational capacity.
The ability of construction sector companies to access the right type of finance is vital for them to operate and grow. Evidence shows that SMEs in the construction industry face more difficulties than their peers in other sectors in accessing financing from local banks. This is majorly because construction businesses are considered to be a higher risk ventures from a corporate finance perspective. Late payment is a particular problem for construction businesses, and SMEs rely on trade credit to smoothen their cash flow during the period between doing the work and receiving payment.
Innovation is therefore vital if local SMEs in the construction sector will be competitive while still enhancing their survival and growth. In support of these SMEs, NCA is spearheading the SME financial project together with the World Bank Group. The model, when implemented, will drive competitive advantage, improve productivity and enable the companies to capture higher value components of the value chain.