I&M signs deal to extend its loan reach

I&M Bank has signed a Sh100 million deal with African Guarantee Fund (AGF) to support its SME lending, joining a growing queue of financiers securing such external funding.

The guarantee facility is part of AGF’s Sh4.2 billion fund launched in June 2012 to underwrite commercial bank lending to SMEs across 16 countries in Africa. SMEs lending is seen as riskier due to their informal nature.

The deal that will see AGF guarantee 50 per cent of SME loans was signed at I&M Bank headquarters on Wednesday by the bank’s CEO Arun Mathur and AGF chief executive Felix Bikpo. Mr Mathur said the partnership will help the bank expand its SMEs market reach.

The segment has become a key revenue growth area for commercial banks that have increasingly signed deals with development and financial institutions.

“No doubt the guarantee facility will go a long way in helping us bring our SME portfolio to the right scale and quality,” said Mr Mathur.

In the financial statement for the year 2011, I&M Bank increased its loans to customers by Sh16 billion to Sh66.4 billion signalling major effort to expand its market presence. The bank has since grown that to Sh75 billion in 2012.

AGF was designed and funded by the African Development Bank in partnership with the governments of Denmark, through Danida, and Spain, through AECID.

Poverty alleviation

Mr Bikpo noted the bank’s track record in empowering medium-sized enterprises in Kenya and the region: “AGF is ready to use its facilities to help I& M Bank...and thus contribute positively to employment creation and poverty alleviation.”

I&M Bank is present in four countries — Mauritius, Tanzania and Rwanda — and had a balance sheet of Sh144 billion as at December 31, 2012. In Kenya the bank has a network of 20 branches.

The mandate of the Nairobi-based Africa-focused AGF is to assist African SMEs increase access to finance from formal financial sector players through the provision of partial financial guarantees as well as capacity development assistance.

The fund was launched with a capital base of Sh4.2 billion ($50 million) in June 2012 with a target of Sh43 billion ($500 million) by 2014.

It is currently working with banks in Kenya, Uganda, Cameroon, Mali, Mozambique, Zambia, Tanzania, Ghana and Senegal and plans to cover more countries.

Under the terms of the fund, banks that get a guarantee will be paid a commission pegged on how risky the bank is viewed by the fund management, based on the quality of its previous lending.