The International Finance Corporation (IFC) is set to cushion Equity Bank Kenya (EBK) against loss risks in a Sh2.85 billion ($20 million) project that aims to provide micro-loan support to refugees and small businesses in 14 fragile counties.
The IFC said in a disclosure that it would provide a Sh1.42 billion ($10 million) risk-sharing facility (RSF) to Equity Bank for the project.
“The project entails a $10 million (Sh1.42 billion) RSF, covering 50 percent of the risk on a $20 million (Sh2.85 billion) portfolio originated by EBK for individuals and MSMEs (medium, small and micro enterprises) in 14 eligible counties,” the private sector lending arm of the World Bank said.
“At least 20 percent of the RSF will specifically cover the loan portfolio for refugees and host communities in Turkana and Garissa. The RSF will be committed in two tranches of up to $5 million (Sh713.42 million) each, with the second tranche's commitment contingent on the satisfactory utilisation of the first tranche” it added.
An RSF is a bilateral loss-sharing agreement between IFC and an originator of assets in, which IFC reimburses the originator for a portion of the principal losses incurred on a portfolio of eligible assets. The originator may be a bank or a corporation.
An IFC RSF typically reimburses an originator for a fixed percentage of incurred losses that exceed a predefined threshold (or first loss). Servicing procedures for performing, delinquent, and defaulted assets will also be agreed upon upfront.
All newly originated assets must be added to the facility portfolio during a ramp-up period that generally lasts two to three years, or until the portfolio reaches a predefined maximum volume.
After the ramp-up period, no new assets may be added, but IFC will continue to share losses with the originator in the amortising portfolio until the last asset has been repaid or the RSF termination date has been reached.
The EBK project will target individuals and MSMEs in Turkana, Garissa, West Pokot, Marsabit, Samburu, Isiolo, Mandera, Wajir, Tana River, Lamu, Laikipia, Baringo, Elgeyo Marakwet, and Trans Nzoia.
The IFC revealed that it will provide comprehensive advisory services to support EBK in building its capacity to serve individuals and MSMEs in the 14 targeted counties, including women and refugees.
