Companies

Equity sets aside Sh75bn for SMEs

Equity-centre

Equity Centre in Nairobi upperhill. FILE PHOTO | NMG

BDgeneric_logo

Summary

  • Chief executive James Mwangi said Equity Bank has secured a mix of guarantees and cheap long-term loans from several development finance institutions that will unlock the funds for lending at 13 percent interest for five years.
  • In September last year the Kenyan government said it will provide Sh10 billion to guarantee commercial loans for SMEs in a bid to cushion them from the economic fallout arising from the coronavirus pandemic.
  • The loans would be issued through local banks which would be partly reimbursed for defaults alongside collateral provided by SMEs.

Equity Bank #ticker:EQTY has said it plans to lend Sh75 billion to small businesses at concessionary terms, noting that it will not participate in the State-led credit guarantee scheme.

Chief executive James Mwangi said Equity Bank has secured a mix of guarantees and cheap long-term loans from several development finance institutions that will unlock the funds for lending at 13 percent interest for five years.

In September last year the Kenyan government said it will provide Sh10 billion to guarantee commercial loans for SMEs in a bid to cushion them from the economic fallout arising from the coronavirus pandemic.

The loans would be issued through local banks which would be partly reimbursed for defaults alongside collateral provided by SMEs.

"We felt that with a Sh35 billion guarantee from FMO, African Development Bank and Exim Bank of Egypt and DFI loans for onward lending we should not be selfish and scramble with other banks for the government-led guarantee, and rather set up a private sector initiative with team Europe and other development finance institutions," Dr. Mwangi said.

He said a partnership with MasterCard saw the foundation inject $100 million (Sh10.9 billion), while Propaco has pumped $100 million (Sh10.9 billion, International Finance Corporation $50 million (Sh5 billion), German development bank-KFW $100 million (Sh10.9 billion).

Equity said additional loans will come directly from the Sh1 trilion asset base that can allow the bank increase its lending drive especially through mobile.

The funds include grants and technical assistance to train small business, in a project that has already seen the lender reach out to 2.2 million SMEs.

Dr. Mwandi was speaking during the unveiling of a seven-year Sh16.5 billion low interest loan from European Investment Bank EIB for onward lending to SMEs.

“We are offering small businesses loans at 13 percent which is the same as corporates but to prolong the period of the loans to five years we needed long term funds and that is why EIB offered us the seven year loan,” Dr. Mwangi said.

He said the bank is trying to address shortfalls in private sector credit that has declined over the years as a result of the 2016 interest rate capping and the adverse effect of the coronavirus pandemic that made lenders risk averse.

“Private sector credit declined from 40 percent to 27 percent of GDP and that is the problem we are trying to address,” Dr. Mwangi said.