Small contractors will access cheap loans of up to Sh5 million from a kitty funded by a controversial levy imposed on construction projects.
The National Construction Authority (NCA) on Tuesday told a parliamentary committee that the authority would offer loans with interest rates of between four and six per cent through commercial banks.
“The aim is to assist contractors who are not able to finance small construction projects. We will probably start with up to Sh5 million so that we can give contractors capacity,” said Daniel Manduku, the NCA chief executive.
He added that the authority is targeting to raise Sh1.7 billion annually for the revolving fund, which will draw from a construction levy of 0.5 per cent of the value of construction projects, including houses and roads exceeding Sh5 million.
But Nairobi Governor Evans Kidero has called for the levy to be revoked, accusing Lands secretary Charity Ngilu of issuing regulations that imposed the levy without consulting the county.
Housing is one of the devolved county functions and Dr Kidero said the levy could reduce activities in the property market.
NCA general manager in charge of regulations, compliance and training Francis Njuguna, said the beneficiaries of the loan scheme must be first registered by the NCA.
He added that the NCA would also list accredited construction workers like plumbers and electricians to access the funds despite not being contractors.
“The Authority proposes to spend a portion of the accreditation fee and the construction levy to facilitate a cash-back scheme whereby the accredited workers can access low interest loans from banks to execute construction assignments,” Mr Njuguna said.
With an interest rate range of between four and six per cent, the NCA fund is cheaper compared to the average mortgage rate of 16.3 per cent and 17 per cent for bank loans.
Official data indicates that construction works worth Sh343 billion were registered with the government last year, meaning that the levy could have collected Sh1.72 billion if it had been in place then.
The loans will benefit youth, women and disabled contractors who have been unable to bid for government construction tenders despite 30 per cent of state purchases having been reserved them.
On Monday, Devolution secretary Anne Waiguru said that only Sh2 billion worth of tenders had been awarded to youth against a target of Sh50 billion.
The fund will also be used as bid bonds for small contractors. A bid bond is a written guarantee from banks or insurers that acts as an assurance to project owners that the selected bidder will complete the assigned job without running into cash flow problems.