Family Bank has renewed its agreement with the African Guarantee Fund (AGF) to insure itself against default losses of loans worth Sh1.5 billion through a portfolio guarantee facility.
This guarantee agreement will cover funded facilities such as overdrafts, term loans, and non-funded facilities such as letters of credit, and bank guarantees, among other credit facilities.
The lender has had two loan portfolio agreements with AGF worth Sh250 million in 2015 and Sh774 million in 2018.
Family Bank has renewed its agreement with the African Guarantee Fund (AGF) to insure itself against default losses of loans worth Sh1.5 billion through a portfolio guarantee facility.
The scheme is targeting micro, small and medium-sized enterprises (MSMEs), women-led businesses, and climate-friendly investments by extending more loans to them for a period of five years.
This guarantee agreement will cover funded facilities such as overdrafts, term loans, and non-funded facilities such as letters of credit, and bank guarantees, among other credit facilities.
The lender has had two loan portfolio agreements with AGF worth Sh250 million in 2015 and Sh774 million in 2018.
In addition to the loan facility, AGF will provide capacity development assistance by offering technical expertise to the MSMEs and exposing entrepreneurs to global knowledge on business development and climate-smart ventures.
“Through this credit facility, Family Bank can scale up lending to MSMEs who form over 80 percent of our customers’ base,” said Family Bank Chief Executive Officer Rebecca Mbithi.
“With the gradual recovery of the economy …, we are able to widen our capital base to support more MSMEs by extending credit at favourable terms.”
Loan guarantee deals are becoming more popular in Kenya, seeking to encourage banks to lend more to SMEs, which are deemed riskier with the benefit of sharing potential losses with the providers of credit insurance.
“Our loan portfolio guarantee agreement with Family Bank is structured to reduce the perceived risk of SMEs and to solve their holistic needs through Capacity Development assistance,” said AGF Group Chief Executive Officer, Jules Ngankam.
The partnership targets unlocking financing intended to facilitate the promotion, growth and development of SMEs.
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. Recent disclosures have, however, shown that large firms are now the main source of growth in defaults in the banking sector.
So far AGF has unlocked financing worth more than $200 million (Sh23 billion) in Kenya, benefitting more than 4,000 businesses through various banks.
