Small credit window squeezes SMEs

Many small and medium enterprises in Kenya find it difficult to penetrate the export market because of unpredictable foreign exchange and the perception that the business is too risky to be financed by commercial banks.

Insurance firm Africa Trade Insurance Agency (ATI) says it has developed a solution for crippling defaults, usually encountered by exporters who sell on credit.

The ATI credit risk insurance cover provides protection for exporters against losses arising from non-payment by overseas buyers.

The cover also protects exporters as it is often used as a financing tool whereby the exporter approaches ATI for insurance cover.

“In the event that the exporter’s buyers default, ATI would then pay the claim proceeds directly to the bank. This product, therefore, gives banks a lot of comfort to finance exporters’ working capital, since the key risk has been taken care of” says Humphrey Mwangi, ATI’s acting chief underwriting officer.

Golden opportunity

ATI has an arrangement with one of the world’s largest credit information providers, to conduct credit assessment on proposed buyers that ATI’s clients sell to.

Besides pre-shipment finance, ATI says banks can also finance the exporter’s receivables by relying on the ATI credit insurance policy as collateral.

This way, they substitute the exporter’s credit risk with ATI’s own risk.

The hurdles in export business could cripple most SMEs that are now eyeing the export market to grow profits and expand their businesses.

Several surveys including a recent one by the Japan International Cooperation Agency says local manufacturers and SMEs have a golden opportunity to produce and market products across the east African states.

The JICA survey says lucrative markets existed in processed dairy products, detergent and hand-made kitchen and households items that Kenya could sell to her neighbours in Uganda, Tanzania, Rwanda and Burundi.

The Kenya National Federation of Jua Kali Associations says its members continue encountering problems in securing funding to finance export businesses because some banks are thinly spread in regional markets.

Some banks such as Barclays and KCB have since formed business clubs for small and medium entrepreneurs that organise seminars to educate customers on cross-border trade.

Barclays Bank recently facilitated travels by some entrepreneurs to enable them gain experience and business contacts outside the borders.