Small businesses receive Sh4bn funding under state’s credit guarantee scheme
Askah Nyakwara displays bottles of wine made from banana. More than Sh4 billion has been issued to micro, small and medium-sized enterprises under the state-backed credit guarantee scheme.
More than Sh4 billion has been issued to micro, small and medium-sized enterprises (MSMEs) under the state-backed credit guarantee scheme.
The National Treasury said by August, a total of 2,609 small businesses had taken loans amounting to Sh4.12 billion since the scheme was launched about 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 by the state in case of default.
The beneficiary businesses include over 650 that employ less than 10 people each.
“Some 60 per cent of the CGS (credit guarantee scheme) beneficiaries were small enterprises while micro-enterprises were 25 per cent and medium enterprises were 15 per cent of the beneficiaries. 20 per cent of credit facilities were to marginalised groups – women, youth, PWDs (people with disabilities),” Treasury stated.
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 – Absa, Diamond Trust Bank, KCB, Credit Bank, NCBA, Stanbic 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 government allocated a seed capital of Sh3 billion in December 2020 and entered into a deal with seven banks to lend to the businesses classified as risky due to their lack of collateral.
“The participating banks are expected to leverage this amount to lend to qualifying MSMEs. As at August 31, 2022, the banks had leveraged the seed capital and lent Sh4.12 billion,” Treasury said yesterday.
It said the businesses, spread across 46 counties, were lent between Sh30,000 and Sh5 million, with an average repayment period of two years. It added that at least 383 businesses had fully repaid loans amounting Sh535 million by end of August, releasing some Sh134 million in guarantee value for lending to other businesses.
The government says it is working to add more banks into the programme to ensure that more businesses access cheap credit.
“The objective of the scheme is to enhance access to quality and affordable credit for growth and operations by MSMEs, who would otherwise be unable to raise the required collateral for such loans and also face uncertain and risky business environment,” Treasury said.
Treasury said businesses that have participated in the programme have a combined workforce of 16,000, part of the jobs created during the two years.
“A number of MSMEs have benefited from an interest rate that is lower than the participating bank’s average rate due to the reduction of risk exposure by the credit guarantee scheme,” Treasury stated.
It is expected that if expanded, the scheme will provide a solution to one of the biggest problems faced by Kenya’s businesses, particularly those in the informal sector, of accessing credit to expand operations or withstand shocks during difficult times.
The Central Bank of Kenya last year reported that at least 35 per cent of micro-enterprises were wiped out by the Covid-19 pandemic by July 2021, revealing the vulnerability of businesses forming over 90 per cent of Kenya’s economy.
Treasury also said the scheme aims to address MSMEs’ short lifespan challenge, where most of the businesses don’t survive to their fourth year.
Under the programme, the government guarantees businesses with the amount deposited at banks to enable them to lend to the businesses the banks would otherwise sideline or charge high-interest rates, making the businesses get loans at cheaper rates than market rates would dictate.
