Economy

Only 334 given Uhuru SME loans

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President Uhuru Kenyatta (right) on January 20, 2022. PHOTO | JOSEPH KANYI | NMG

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Summary

  • Credit facilities amounting to Sh634.5 million were issued by the seven banks which have signed up to the state-backed scheme in which the Treasury injected Sh3 billion under the review period.
  • The Treasury covers up to 25 percent of the loan in the event of default of the loan which has a limit of Sh5 million per borrower with a repayment period of 36 months.

President Uhuru Kenyatta’s plan to derisk access to credit for small traders started on a low note with a handful of businesses getting loans under the State-backed Credit Guarantee Scheme (CGS).

Treasury statistics show only 334 businesses accessed loans under the guarantee scheme in the 12-month period through last June in a country of more than seven million micro-small- and medium-sized enterprises (MSMEs).

Credit facilities amounting to Sh634.5 million were issued by the seven banks which have signed up to the state-backed scheme in which the Treasury injected Sh3 billion under the review period.

The capital injection fell short of the Sh7 billion target by more than half.

The seven banks – KCB #ticker:KCB , NCBA #ticker:NCBA , Co-op #ticker:COOP , Absa #ticker:ABSA , DTB, Stanbic #ticker:SBIC and Credit Bank – independently scrutinise the ability of the small businesses to repay the loan and determine applicable interest rate based on the risk of default.

The Treasury covers up to 25 percent of the loan in the event of default of the loan which has a limit of Sh5 million per borrower with a repayment period of 36 months.

The participating lenders, however, have an open hand in pricing the loans based on the individual borrower’s risk but are encouraged to charge single-digit interest.

“Over the medium term, the Government intends to adopt a sustainable model for the Scheme, bring on-board additional PFIs and engage development partners to increase the capital from Sh4 billion to Sh10 billion in order to enhance the coverage of the Scheme,” Treasury secretary Ukur Yatani wrote in 2022 Budget Policy Statement (BPS).

The loans under the scheme are aimed at supporting working capital and acquisition of assets for the credit-starved small businesses.

Despite banking industry data showing over the years that the rate of default among small businesses was lower than that for corporates, banks continue to assign a higher risk profile to the MSMEs which usually prices them out of the market.

Room for improvement

Findings of a 2016 survey by the Kenya National Bureau of Statistics (KNBS), for example, concluded that about 71 percent of the 7.4 million MSMEs in 2015 got less loans than they had applied from the banks, with about 86 percent forced to rely on family and friends.

“There’s still room for improvement in terms of operationalisation of the CGS. The structures that are managing that must appreciate the uniqueness of the target,” Micro and Small Enterprises Authority chief executive Henry Rithaa told the Business Daily.

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