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Private financiers see potential in SMEs

K-Rep Bank with a strong focus on SME lending has received equity funding. Photo/FILE
K-Rep Bank with a strong focus on SME lending has received equity funding. Photo/FILE 

Kenyan commercial banks lending to small and medium enterprises (SMEs) have benefited from private equity funds and concessionary loans in the past five years, indicating growing optimism in the debt-worthiness of these businesses.

Development finance institutions and private equity funds such as IFC, AfricInvest, Helios, Actis, Norfund, Grofin Africa and FMO are some of the financiers that have intensified their activities in Kenya and the east African region.

Equity Bank, Standard Chartered, Diamond Trust Group, Family, K-Rep and Bank of Africa — all lenders that have a strong focus on SME lending — have received equity and debt funding from the institutions, boosting their capacity to lend more.

Last week, the IFC extended a Sh2 billion loan facility to the Diamond Trust Bank Group for lending to SMEs in the three East African countries in which the lender operates.

The bank’s chief executive, Nasim Devji said the influx of private funds into Kenya is attributable to its profile as an important investment destination offering security and a strong growth prospects.

“Kenya is emerging as an important investment frontier, which is attracting private funds from other market because its businesses are experiencing strong growth while offering security on the investments,” said Ms Devji.

IFC, the World Bank’s private lending arm, has committed more than Sh44 billion ($554.8 million) to finance loans to emerging enterprises across Africa.

Locally the corporation has channelled these funds through the Standard Chartered Bank and Diamond Trust Bank Group.

Richard Etemesi, chief executive of Standard Chartered Bank Kenya, says the financiers are attracted by the huge growth potential of Kenya’s SMEs.

“The SME sector is the engine of growth for economies worldwide,” said Mr Etemesi on Tuesday while launching a training for his bank’s SME clients in a joint programme with IFC.

It is this realisation that has put SMEs on the top drawer of most lenders, and by extension lured private financiers who are willing to back the banks’ strategy.

More than two-thirds of the small and medium businesses rank loans from commercial banks as the most preferred source of capital, according to a survey done by local research group Synovate.

AfricInvest, a Mauritius-based private equity firm injected Sh1 billion in Family Bank on Tuesday, in a cash-for-equity deal that saw the fund acquire a 24.99 per cent stake of the micro-lender.

The investment is aimed at strengthening the bank’s lending capacity, especially to the small and medium-size companies.

The SME enterprises have lately reported exponential growth, which the private equity funds view as attractive opportunities for them to invest in.

The current situation is a far cry from the last decade when the small enterprises could not access credit from the banks because of they were viewed as a high risk class of borrowers, a situation that was worsened by a lack of collateral against which they could be funded.

Their capital requirements were often too large for the banks, which at the time were grappling with high default rates that dampened their lending appetite.

Michael Turner, the managing director of private equity fund Actis, says that economic growth is opening up new investment opportunities.

“There is a strong economic expansion in the East African region which is opening up growth opportunities for businesses and we are stepping in as players in private equity to finance their expansion,” said Mr Turner.

Actis owns property in the real estate sector in Kenya, notably the Junction Shopping Mall while its investments in the financial services in the region include an 80 per cent stake in the Commercial Bank of Rwanda and 60 per cent stake in DFCU Bank in Uganda.

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