Youth Fund rejects bid to restrict lending channels

The Youth Enterprise Fund has rejected a move by Parliament to restrict the channels for lending its money to three banks in which the government has significant interests.

The fund’s chief executive Juma Mwatate said the move to dictate the banks through which the Fund can lend the money was ‘ill-advised.’

“This will limit its availability to the youth and women since banks have varying branch reach,” said Mr Mwatate.

On Wednesday, Gem MP Jakoyo Midiwo said he would propose amendments to the Finance Bill so that the Youth Enterprise Fund (YEF) and the Women’s Enterprise Fund would lend the money through KCB, National Bank of Kenya and Consolidated Bank.

He said the interest rates in the three banks would also be capped at five per cent.

“We are going to propose amendments to the Finance Bill 2012 that will see controls on interest rates charged by National Bank, Consolidated Bank and Kenya Commercial Bank to protect Kenyans from being fleeced,” Mr Midiwo said.

The two funds were set up by government to help youth and women access funds at rates lower than the prevailing market rates, currently about 20 per cent.

But Mr Midiwo claimed that commercial banks were lending the money given to them by the government for distribution at 30 per cent, against a recommended rate of eight per cent.

The youth fund has entered into on-lending deals with Family Bank, Equity Bank and K-Rep Bank as well as KUSCCO — the umbrella Sacco body.

Under the arrangement, banks are required to match up the funds received with their own resources whose lending rate is not prescribed.

Family Bank, which received Sh25 million from YEF said Mr Midiwo’s claims were not true.

“We entered into the onward lending agreement last year and we lent at the rate agreed upon of eight per cent,” said Henry Karugu, the chief marketing officer at Family Bank.

Mr Mwatate said an audit into how the institutions were lending the money indicated that they had complied. “If he has evidence on a bank which is flouting the rules, let him forward the details to us. We will conduct a special audit,” he said.

Kwame Owino, the CEO of the Institute of Economic Affairs, however said that themove to select a few banks to lend to the youth would face challenges.

“The government can, as a matter of principal, choose to handpick the banks that will lend out the money but there is the challenge that it is no guarantee that they will be efficient in doing so,” said Mr Owino.