Editorials

EDITORIAL: Review SMEs loan plan

treasury

Treasury building. FILE PHOTO | NMG

It is good to know that the Treasury has acknowledged the suffering wrought to many small businesses by close to two years of credit drought under the interest capping law.

But it appears intent on rolling out yet another wrong policy solution to the problem.

Under a proposal being discussed with commercial banks, the Treasury will guarantee loans to SMEs, hoping to unlock credit to them. Experience with a litany of affirmative action policies, including the Youth Fund, the Uwezo Fund, the Women’s Fund and Access to Government Procurement Opportunities, suggests that going down that path is outright futile.

It is not far-fetched to imagine that the bureaucrats will have a problem even deciding who qualifies for the credit guarantee scheme in the first place or that the wrong people will benefit.

A more serious concern is the endemic fraud that seems to always lurk around such initiatives.

Engaging in endless consultations also betrays reluctance on the part of the government to address the real cause of expensive loans – its own huge presence in the domestic credit market that has made SME lending unattractive.

As many economists and banking experts have pointed out, the solution to the credit crisis lies in reduced domestic borrowing by the government.