The National Treasury has begun recruiting a consultant to set up a company in partnership with financial institutions to de-risk lending to small businesses, including those who graduate from the Hustler Fund, by commercial banks.
The proposed Kenya Credit Guarantee Scheme Company (KCGSC) will guarantee a share of the loans commercial banks will advance to cash-strapped micro, small and medium-sized enterprises (MSMEs).
The joint venture between the government and private sector is expected to unlock higher-value loans to individuals and groups whose financial needs will grow beyond the limits provided by the Hustler Fund – President William Ruto’s flagship financial inclusion programme.
“The National Treasury and Economic Planning, through its Project Implementation Unit, now invites eligible consulting firms to indicate their interest in providing the services,” the ministry said in an ad Friday.
Treasury had expressed intentions to set up the KCGC in this year’s Budget Policy Statement (BPS), in a bid to boost innovation and liquidity to MSMEs in the country by de-risking them and improving their access to credit from commercial lenders.
The Treasury said the project, which will be executed alongside the World Bank, seeks to “increase access to financial services, enhance the capabilities, and support the Covid-19 recovery of MSMEs.”
With the establishment of the company, cash-strapped small businesses that struggle to access commercial credit at affordable terms are set to benefit the most, with the State now guaranteeing a share of their loans under the new company.
Currently, a majority of MSMEs and young entrepreneurs rely on the Financial Inclusion Fund, also known as the Hustler Fund, and other concessional government funds, as commercial loans remain out of their reach.
KCGC will replace the current Credit Guarantee Scheme (CGS), which was established in December 2020 with a similar objective of helping MSMEs secure affordable financing from formal financial institutions. The Treasury had projected to unlock up to Sh40 billion to small traders under the CGS for the financial year ended June 2022 after it initially allocated Sh10 billion towards the scheme. It, however, slashed the budget to Sh3 billion, targeting lending of about Sh12 billion.
In the draft 2024 BPSs, the Treasury said the transition is meant to “ensure sustainability and develop a credit guarantee policy whose objective is to provide a clear framework for a sustainable model for credit guarantee scheme for MSMEs.”
CGS has been faced with a myriad of challenges, limiting its utilisation and ability to achieve stipulated objectives.
In a report to the National Assembly in November 2022, the National Treasury said that only 35.9 percent of the total guarantees offered had been utilised by MSMEs, with some counties like Mandera having no beneficiaries.
At the time, the scheme had partnered with seven of the 21 registered banks in the country.
