Gulf African Bank along Kenyatta Avenue in Nairobi. The bank has signed a Sh100 million deal with the African Guarantee Fund. FILE
What you need to know:
The funding by the African Guarantee Fund (AGF) will provide more funds for lending to SME at nearly half the average market rate.
The loans to the SMEs have a capacity building component that go towards boosting financial and risk management capabilities.
Small and medium business owners are set to get cheaper loans following the signing of yet another multi-million- shilling credit guarantee between a Kenyan lender and an affiliate of African Development Bank (AfDB).
Sharia-based Gulf African Bank signed the Sh100 million loan on Monday. The funding by the African Guarantee Fund (AGF) — an affiliate of AfDB — will provide more funds for lending to SME at nearly half the average market rate.
The guarantee to the Gulf Bank is the third in two weeks by AGF as two other banks have also benefited, bring the total guaranteed amount in the period to Sh250 million.
The portfolio guarantee deals are meant to distribute the risks associated with lending to SMEs between AGF and the banks. The banks are more likely to lend to SMEs by deriving comfort from the AGF risk guarantee.
“Through AGF we can now give a voice to African perspectives on Africa’s development challenges and solutions by supporting financial institutions to enable them to finance SMEs in Africa,” said AGF chief executive Felix Bikpo.
The loans to the SMEs have a capacity building component that go towards boosting financial and risk management capabilities.
The agreement between AGF and Gulf African Bank was signed at the Nairobi Serena Hotel on Monday by Mr Bikpo and the bank’s managing director, Asad Ahmed.
Gulf Bank’s ability to increase lending to SMEs has come only a month after the financial institution announced that it had sold a 15 per cent stake to the International Finance Corporation (IFC), the private lending and equity affiliate of the World Bank. The participation by the IFC and other existing shareholders raised the bank’s capital by Sh854 million.
“Inadequate capital is the key challenge facing SMEs in Africa. They are asked for collateral which they may not have. Many lenders shy away from financing small companies because they consider them risky,” said Mr Bikpo.
“When they lend they ask for collateral and charge a higher rate. This is where AGF comes in to give comfort to lenders to lend at lower rates.”
Mr Ahmed said the bank now had about 40,000 accounts, a significant number of which was from new account holders. He said the description of SMEs was not a fixed one and bank was always willing to negotiate with them for funding.
Gulf African Bank is a Shari’ah-compliant bank, offering products to both Muslims and non-Muslims. Its shareholders include Istithmar World which is the investment arm of the Government of Dubai and Bahrain-headquartered Bank Muscat International.
Last June, AfDB president Donald Kaberuka, announced the official launch of the AGF, which was designed and funded by the lender in partnership with the governments of Denmark and Spain.
AfDB contributed $10 million while Denmark and Spain brought in $20 million each as start-up capital, bringing the present share capital to $50 million (Sh4.2 billion).
