Capital Markets

Absa gets Sh1.2 billion insurance for SME loans


Absa Bank along Muindi Mbingu Street in Nairobi. FILE PHOTO | EVANS HABIL | NMG

Absa Bank Kenya #ticker:ABSA has signed an agreement with the African Guarantee Fund (AGF) to insure the lender against defaults of up to Sh1.25 billion as it seeks to expand loans to small businesses including start-ups.

The guarantee line will be in place for a period of five years and will see the bank provide loans of up to Sh100 million to a single borrower.

The partnership will also provide small businesses with technical assistance to build their managerial capabilities in areas such as governance, human capital management, quality control, packaging, financial management and marketing.

This will assist to scale up SME lending activities in situations where the target clients are unable to meet collateral threshold requirements, the parties said in a statement.

“Considering the financing gap experienced by most SMEs due to their risk profile and lack of security, the bank is always exploring innovative ways to mitigate possible risks in this segment and at the same time tap into the huge opportunity within this growth sector and driver of our economy,” Absa’s managing director Jeremy Awori said.

To qualify for funding, prospective borrowers must represent new or incremental business only geared towards investments and/or working capital for growth with green and women in business enterprises accessing up to 75 percent cover. Other businesses which are not green and women related will receive up to 50 percent cover.

The deal with Absa is part of AGF’s $170 million (Sh19.3 billion) fund announced in 2019 for backing Kenyan banks’ lending to small and medium enterprises (SMEs).

AGF typically guarantees half of the value of a loan balance to a single SME borrower or half the value of an outstanding SME loan portfolio and charges banks a fee of between 1.5 percent to three percent for the risk guarantee.

Some of the local lenders that have struck such deals with the institution include NIC Bank and Ecobank.

Lending to SMEs has traditionally been seen as presenting more risk of default compared to lending to large, established private firms and government-owned institutions. This has seen some banks opt to insure some or all of their SME loan portfolios.

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