LINKING FINANCIAL DIGITALIZATION TO THE FINANCIAL SUSTAINABILITY OF MICRO, SMALL AND MEDIUM SIZED ENTREPRISES
By CPA Margaret Kamakia
Head of Business Studies, PAC University

Micro, small and medium-sized enterprises play an important role in driving the economic growth, innovation and employment in every economy. In developing countries like Kenya, the majority of businesses take this form. A large proportion of the young population is already taking advantage of digital tools to do business. However, many still lack the skills and resources that will enable them to manoeuvre the changing technological landscapes.

While emerging technologies have improved the way business is conducted, many micro, small and medium-sized enterprises continue to struggle to keep up with the speed at which this change occurs. They face stiff competition, and some close down just a few months after starting. This leads to increased levels of unemployment, a lack of essential goods for the poor population, and slow economic growth. There is, therefore, a need to define strategic ways of conducting businesses and build capacities for financial sustainability.

Proposed by Teece and Pisano (1964), the theory of dynamic capabilities requires the organisation to use available resources to continually renew and transform in line with the environmental changes, in order to gain and sustain a competitive advantage. The micro, small and medium-sized enterprises can build capacities, engage in financial digitalisation and remain financially sustainable. Some of the ways in which they can build capacities include access to financial literacy and the adoption of digital finance instruments. Knowledge in such areas as cashflow forecasting and sources of sustainable financing can greatly enhance their competitiveness when integrated with use of digitalisation.

In micro, small and medium-sized enterprises, creating awareness of the opportunities that financial digitalisation can bring is key. Businesses will have the chance to address disruptions caused by new technologies, such as cashflow declines resulting from lost markets, unemployment due to declined production, and the shrinking of the economy as a result of decreased investment and consumption.

About the Author
Margaret Kamakia is the Head of Business Department at Pan Africa Christian University. She is a lecturer in the same department and is a finance consultant.