Make single fund for SMEs a priority

Treasury2405bv
Treasury2405bv

What you need to know:

  • Just the other day, the government announced that a new credit scheme with an initial capital of Sh10 billion would be operationalised by October 10, this year.
  • That announcement was made as part of the administration’s interventions aimed at enhancing access to credit to the small and medium enterprises (SME) sector during the Covid-19 pandemic.
  • Clearly, this was a very ambitious target especially when one considers the crippling cash flow position the administration has been grappling with lately.

I don’t know whether the implementation of the proposed credit guarantee scheme by the government is going according to plan.

Just the other day, the government announced that a new credit scheme with an initial capital of Sh10 billion would be operationalised by October 10, this year.

That announcement was made as part of the administration’s interventions aimed at enhancing access to credit to the small and medium enterprises (SME) sector during the Covid-19 pandemic.

Clearly, this was a very ambitious target especially when one considers the crippling cash flow position the administration has been grappling with lately.

According to the statement the government put out last month and which came after a Cabinet meeting, the initial capitalisation of the new credit guarantee scheme would be effected in two equal tranches of Sh5 billion in the current financial year and the next.

The statement added that the hope of the Cabinet was that capital contributions to the scheme would be followed by contributions from development finance institutions and participating commercial banks that were expected to boost the total funding of the scheme to at least Sh100 billion. In the current circumstances, a credit guarantee for the SME sector makes a great deal of sense.

The attractiveness of a credit guarantee scheme is that it provides an arrangement where donor agencies or private sector organisations provide guarantees to financial institutions on the understanding that — in the event the borrower defaults — the guarantor will reimburse an agreed per centage of the unpaid loan to the lender.

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Note: The results are not exact but very close to the actual.