SMEs allocated Sh1bn funding under State-backed credit guarantee scheme
The credit guarantee scheme encourages banks to disburse credit to borrowers they would otherwise turn away.
What you need to know:
- The fund was established to enhance access to quality and affordable credit for the growth and operations of MSMEs.
- The credit guarantee scheme encourages banks to disburse credit to borrowers they would otherwise turn away.
Small and medium-sized enterprises (MSMEs) have been allocated Sh1billion financing under the state-backed credit guarantee scheme in the financial year starting July.
The National Treasury in its expenditure plan for the new fiscal year said the funds will form part of an economic stimulus programme.
The fund was established to enhance access to quality and affordable credit for the growth and operations of MSMEs, which would otherwise find it difficult to access loans from commercial banks.
A select group of commercial banks issue the loans and can be compensated for up to a quarter of losses from default using the cash provided by the Treasury, which now stands at Sh3 billion.
This means that the banks, including Absa Bank Kenya, Diamond Trust Bank Kenya, KCB, and Co-operative Bank can provide loans worth at least Sh12 billion or four times the amount provided by the government in the scheme. The loan limit is set at Sh5 million per borrower with a repayment period of 36 months.
Small enterprises accounted for 52 per cent of the beneficiaries, followed by medium enterprises (25 per cent) and marginalised groups, including women, youth, and persons living with disabilities (23 per cent).
Multilateral lenders
A report released by the National Treasury last month showed that more than Sh2 billion had been issued to MSMEs under the state-backed credit guarantee scheme.
It said that by December 2021, a total of 1,291 small businesses had taken loans amounting to Sh2.1 billion since the scheme was launched a year ago. The credit guarantee scheme encourages banks to disburse credit to borrowers they would otherwise turn away, confident that they will be compensated in case of defaults.
“There was a steady growth in beneficiaries through the year, with 338 facilities issued in December 2021 as compared to two facilities a year earlier,” Treasury Cabinet Secretary Ukur Yatani said in a statement.
Of the Sh3 billion provided by Treasury, only Sh546.2 million was absorbed, with the balance of Sh2.45 billion still available to guarantee up to Sh9.8 billion in credit to qualifying MSMEs through the seven banks.
“The figure amount will go higher as repaid guarantee funds are also factored,” added Mr Yatani.
The credit guarantee scheme backed by the government adds to other facilities run by multilateral lenders and development finance institutions that seek to boost SMEs’ access to credit for growth and working capital.
Last year, a Central Bank of Kenya study showed that banks turned away 28 per cent of small businesses while microfinance institutions declined 96 per cent of their loan applications.
