Sh5m fine for SMEs misusing State loan


Treasury Cabinet Secretary Ukur Yatani. FILE PHOTO | NMG

Small businesses that give false information to get State-backed loans or use the credit for purposes not disclosed in the applications risk up to Sh5 million fine.

The Treasury further says that small and medium enterprises (SMEs) who destroy property like offices and machinery used as collateral for the loans also risk the hefty fines.

Under the Public Finance Management (Credit Guarantee Scheme) Regulations, 2020, directors, general manager, secretary and other top officials of small businesses that breach the proposed law will be jailed for up to two years.

The penalties are meant to reduce risk exposure as the Treasury seeks to curb huge losses under the Credit Guarantee Scheme where it will provide third-party credit risk mitigation for commercial loans.

Treasury Secretary Ukur Yatani tabled the proposed law before the National Assembly last month as the State speeds up efforts to cushion SMEs from the Covid-19 pains.

“A person who willfully applies any proceeds of a guaranteed credit facility to any purpose other than the purpose for which the credit was approved, knowingly gives false information or wilfully destroys any asset used as a collateral by a financial intermediary commits an offence and is liable on conviction to a fine not exceeding five million shillings or to imprisonment for a term not exceeding two years or to both,” Mr Yatani says

The State will also seize and auction goods of the SMEs that will default on the bank loans in a raft of stringent measures meant to cut losses.

The penalties are meant to cut losses where individuals and businesses could divert the loans and derail the State’s bid to ensure that small businesses remain afloat.

Under the scheme set to be launched before end of the year, the Treasury will only take a portion of the losses in case an SME defaults on repayment.

The Treasury has injected Sh3 billion in initial capital for the scheme with development partners and multinational lenders set to provide more funds.

The EU has committed €100 million (Sh11.7 billion).

Parliament last month directed the Treasury to disclose the maximum percentage of the losses it will absorb on loan in case of a default in a move aimed at reducing the taxpayers’ risk.