KIE tightens lending terms with credit rating rules

State lender Kenya Industrial Estates has tightened the noose on small borrowers through partnership with credit rating bureaus to check defaults.

More than 3,000 small and medium enterprises borrowing from the KIE will have to seek clearance from Metropol Credit Reference Bureau before getting loans.

Credit rating will lead to blacklisting of defaulters at KIE and other lenders, as sharing of credit information among financial institutions expands to micro-lenders and government institutions.

KIE says the requirement will force those affected to pay up and improve loan recovery.

“We want to streamline lending and ensure funds go to deserving businesses. We have 3,000 loanees and credit rating and scoring will help us to increase our customer base and protect our funds as well,” said KIE managing director Julius Mokogi.

Loans to small businesses last year increased by 107 per cent from 56 projects to 116 projects with the approved expenditure rising from Sh15.3 million to Sh38 million in the same period. Most of the projects financed included grain milling and tailoring.

Working capital

The loans range from Sh100,000 to Sh500,000 repayable over three to eight years. The loans provided are for machinery, equipment and working capital.

The Ministry of Industrialisation has been trying to spur growth in manufacturing but difficulties in accessing credit are among the hindrances.

New borrowers will also be subjected to credit rating by Metropol, one of the country’s two credit reference bureaus, to lock out those with bad repaying record.

The two organisations signed the agreement last week, kicking off the rating process that will be complete within two weeks.

“We will collect the customers’ credit history and give it to KIE to be able to measure the credit worthiness of each of them,” said Mr Sam Omukoko, the managing director of Metropol.

“This will save KIE from serial defaulters who take loans with no intention of paying back.”

Mr Omukoko said the Finance Act 2012 now allows banks to share positive information which will help to build credit scores.

Lending by government and quasi government institutions dropped 25 per cent last year on high interest rates from Sh2.7 billion in 2010 to Sh2 billion in 2011 reducing the much needed investments in the manufacturing.