State drops plan to give SMEs Sh1bn


A trader counting money after a day’s sale on Wednesday, October 28, 2020. PHOTO | DENNIS ONSONGO | NMG

The Treasury has dropped plans to inject Sh1 billion into President Uhuru Kenyatta’s plan to derisk access to credit for small traders.

The supplementary budget shows the spending under the Economic Stimulus Programme has been shelved and the funding plan scrapped.

The spending vote is found under the Treasury line budget as capital grants and transfers meant for the Credit Guarantee Scheme.

The rollback of the scheme comes after an assessment by Treasury showed that only 334 businesses accessed loans under the guarantee scheme in the 12-month period through last June in a country of more than 7 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 rollback of the funding plan is expected to delay the accumulation of Sh10 billion targeted by the Treasury to guarantee commercial loans for small and medium enterprises (SMEs) in a bid to cushion them from the economic fall-out arising from the coronavirus pandemic.

The Government has committed to progressively raise the capital to Sh10 billion with the President saying the State is eyeing Sh100 billion for the scheme with more funds to be raised from international financiers.

“During the current fiscal year, the Government operationalized the Credit Guarantee Scheme by providing seed capital of Sh3.0 billion to de-risk lending to Micro, Small and Medium Enterprises and signed Credit Guarantee Agreements with seven commercial banks,” CS Yatani said in his budget speech.

“To further promote access to affordable credit by Micro, Small and Medium Enterprises, the Government has committed to progressively raise the capital to Sh10.0 billion. In this budget, I propose to allocate an additional Sh2.0 billion to the Scheme,” he said.

The slow capital injection is likely to dampen lenders' participation or the willingness to accommodate more small businesses. The seven banks – KCB, NCBA Co-op, Absa, DTB, Stanbic and Credit Bank – independently scrutinise the ability of the small businesses to repay the loan and determine applicable interest rates 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.

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

The scrapping of SME money meant to stimulate the economy post-Covid-19 is not the only roll back Treasury has done as part of the cuts in the supplementary budget.

The government has also scrapped Sh1 billion meant for locally fabricated desks for secondary schools under the budget for early learning and basic education.

Treasury has also cut the budget for affordable housing from Sh8 billion to Sh5.2 billion dashing the hopes of small businesses looking to capitalize on state spending to kick start their businesses.

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