Treasury Secretary Ukur Yatani has capped loans to be accessed by businesses owned by youth, women and disabled people under the new Biashara Kenya Fund that will receive Sh2.5 billion to start operations.
Mr Yatani has also lowered the maximum loan for a single borrower under the Fund to Sh2.5 million in the refreshed Public Finance Management (Biashara Kenya Fund) Regulations 2021 from Sh3 million in the previous rules unveiled last year.
The new regulations will guide the operations of the Biashara Kenya Fund and end a seven-year process to merge Uwezo Fund, Youth Enterprise Development Fund (YEF) and Women Enterprise Fund (WEF).
The process of establishing a single affirmative action fund followed a recommendation in the Presidential Task Force on Parastatal Reform Report of 2014 to remove duplication of roles, cut overheads and enhance efficiency.
Women- and youth-owned enterprises will each get a 35 percent share of the loans under the Fund, while businesses owned by persons with disability will access up to 10 percent.
The share for micro-, small- and medium-sized enterprises has been capped at 17 percent of the available loans while the remaining three percent will cater for administrative expenses.
“The [Fund’s oversight] board may recommend the variation of the thresholds with the concurrence of the Cabinet Secretary for the time being responsible for gender, in consultation with the Cabinet Secretary for the time being responsible for youth, and approval of the Cabinet Secretary responsible for finance for use in any financial year,” Mr Yatani says in the regulations.
The Treasury has retained the cost of borrowing from the Fund at six percent, half the average 12.08 percent commercial lending rate in April.
The Fund will also partner with private sector organisations to boost lending. Its oversight board has been allowed to lend approved agents such as microfinance institutions and non-governmental organisations at an annual interest of three percent for on-lending.
The agents will match the cash advanced to them and lend women, youth, persons with disability and small traders at a maximum interest rate of 10 percent.
The government’s intervention is geared at enabling these three groups’ ventures —who have been marginalised by lenders due to high risk of default and lack of collateral —to access credit for growth and development.
“We want to inject efficiency in the whole system (of affirmative loan disbursement)…and the big advantage is that the Fund will grow from Sh2.5 billion to Sh14 billion,” Mr Yatani said earlier.
Latest audited financial statements show Uwezo Fund, set up in 2014, had disbursed Sh6.06 billion as at June 2019 to 65,169 women, youth and persons disability groups.
Youth Enterprise Development Fund and Women Enterprise Fund (WEF), both established in 2007, had given out Sh12.8 billion and Sh3.03 billion respectively to nearly 1.16 million youth and 13,482 women self-help groups by June 2019.
Auditor-General Nancy Gathungu, however, passed a qualified (doubtful) opinion on Women Fund and disclaimer opinion on Youth Fund and Uwezo Fund— pointing to insufficient evidence to form a conclusion.
Despite banking industry data showing over the years that the rate of default among small traders was lower than that for corporates, banks continue to assign them a higher risk profile which usually prices them out of the market.
To derisk the credit market for small traders, Treasury in November last year unveiled Credit Guarantee Scheme which covers 25 percent of the loan in an event of default.
A woman, youth or a disabled person shall be eligible to apply for a business loan if they are in a registered group where at least 70 percent of the members are aged between 18 and 35 years.
Money borrowed from Biashara Fund will be used for business only, with applicants expected to prove establishment of business.