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Banks to own 75 percent of credit guarantee firm
Cooperative Bank of Kenya company secretary Samuel Mwaura (left seated) sign the Credit Guarantee Scheme (CGS) Agreement with the National Treasury on December 8, 2020 at Serena Hotel in Nairobi.
Commercial banks are set to control three-quarters of the Kenya Credit Guarantee Scheme Company, as the government steps back from administering a similar pioneer fund.
The government, which has been absorbing losses of up to 25 percent of delinquent disbursement under a pilot credit guarantee scheme that has run since the Covid-19 pandemic, is expected to hold a minority stake in the company.
The current scheme does not have a corporate structure, with the government having provided Sh3 billion funding to act as a catalyst for expanded lending by commercial banks to small and medium-sized enterprises.
Last week, the National Treasury and financial institutions held an investors call as part of a process expected to expedite the creation of the company.
“What we need to do now is scale up, move past the seven banks in the pilot to include all banks and also move the capital from Sh3 billion to Sh10 billion,” said Kenya Bankers Association Chief Executive Officer Raimond Molenje.
“The government wants to step back and allow the private sector to run this scheme and is moving to only retain a 25 percent shareholding.”
Earlier this year, the Treasury paused issuing loan guarantees for small traders pending the formation of the new company to administer the fund.
The new company is expected to replace the current credit guarantee scheme established in December 2020 to help micro, small and medium enterprises (MSMEs) to secure affordable credit.
The Treasury has made available Sh3 billion for the scheme since inception, while seven commercial banks have disbursed Sh6.6 billion on the guarantee of recovering at least Sh1.65 billion in case of default.
The seven banks that signed up to the pilot are KCB Bank, NCBA Bank, Co-operative Bank, Absa, Diamond Trust Bank, Stanbic Bank and Credit Bank.
Borrowing by a single MSME had been capped at Sh5 million but lenders had a free hand in determining the cost of borrowing based on each client’s risk profile.
Some 4,121 MSMEs in all counties but Mandera had accessed the State-backed loans as of August last year.
Banks have deemed the pilot a success, highlighting low levels of default for borrowers often sidelined as too risky.
“The government had put in seed capital of Sh3 billion in the scheme. Banks have been able to lend over Sh6.6 billion up to now while the non-performing loans ratio is at five percent,” said Mr Molenje.
The Treasury previously indicated that the new credit guarantee company would be 10 percent operational by June 30, 30 percent operational by June 30, 2026 and hit full operational scale in June 2028.
The move to create the company has since received Cabinet approval.
Manufacturers have asked the exchequer to raise the loan limit per borrower in the State-backed underwriting scheme to Sh20 million from the Sh5 million in the pilot to unlock additional liquidity for the sector.
