The Treasury has paused issuing loan guarantees for small traders, pending the formation of a new company to administer the fund.
The new Kenya Credit Guarantee Scheme Company is expected to replace the current Credit Guarantee Scheme (CGS), which was established in December 2020 with a similar objective of helping micro, small, and medium enterprises (MSMEs) secure affordable financing from formal financial institutions.
Treasury has injected Sh3 billion into the CGS in the last four financial years.
“Additional allocation [is] awaiting the incorporation of the CGS as a company,” the Treasury says in the latest budget proposal documents for the financial year starting July.
Incorporation of the proposed company is awaiting cabinet approval, said the Director-General for Budget, Fiscal, and Economic Affairs at the Treasury, Albert Mwenda.
The new company is expected to ensure sustainability of the Sh10 billion credit guarantee scheme for MSMEs.
“We will scale up the fund once we get the cabinet approval,” said Mr Mwenda.
The Treasury, in the latest budget progress report, says it expects the new company to be 10 percent operational this current year, rising to 30 percent by June 2026, 80 percent in the year that will follow, and 100 percent by June 2028.
The scheme currently undertakes to absorb losses of up to 25 percent of the loans disbursed in the event of default.
This means the Treasury had expected participating banks to advance as much as Sh12 billion based on the Sh3 billion capital injected into the scheme.
However, the latest disclosures show that the small traders had accessed about half of the targeted funds, which were worth Sh6.3 billion, by last August.
Seven banks have signed up to the scheme including KCB, NCBA, Co-operative, Absa, DTB, Stanbic, and Credit Bank.
Borrowing by a single MSME is capped at Sh5 million. The lenders have an open hand in pricing the loans based on individual borrower’s risk profile.
Some 4,121 MSMEs in 46 counties – excluding Mandera where KCB is the only bank with a branch – had accessed the State-guaranteed loans by last August spread across 12 sectors of the economy, compared with 2,190 MSMEs a year earlier.
The growth in uptake signals growing appetite despite a marginal increase in the value of loans disbursed remaining largely stagnant.
Banks continue to assign a higher risk profile to the MSMEs, which usually prices them out of the credit market despite industry data showing the rate of default among small businesses has over the years been lower than that for big corporates.