The supplementary budget shows that the Treasury has scrapped a Sh1 billion allocation to a credit guarantee scheme which enables banks to lend more to SMEs.
The government has already provided Sh3 billion to fund the scheme, with a goal to make up to Sh10 billion available to back the loans.
An assessment by the Treasury showed that only 334 businesses accessed loans under the guarantee scheme in the 12 months to June 2021.
It is worrying that the government is going slow on the plan to help small and medium-sized businesses access credit from banks.
The supplementary budget shows that the Treasury has scrapped a Sh1 billion allocation to a credit guarantee scheme which enables banks to lend more to SMEs on the confidence that the State will absorb up to a quarter of the potential defaults.
The government has already provided Sh3 billion to fund the scheme, with a goal to make up to Sh10 billion available to back the loans.
This means that banks could lend up to Sh40 billion if the State fully funds the guarantee programme. The cancellation of the Sh1 billion additional allocation, therefore, means that the noble initiative will not grow to the envisaged scale or will take longer to do so.
The performance so far is not encouraging in terms of actual loan disbursements.
An assessment by the Treasury showed that only 334 businesses accessed loans under the guarantee scheme in the 12 months to June 2021.
Credit facilities amounting to Sh634.5 million were issued by the seven banks which have signed up to the credit guarantee scheme. This is a fraction of the amounts the government itself has provided to back the loans, leave alone the larger resources banks are able to lend.
There is an urgent need to find the reasons for the slow uptake of the credit facilities. Either the lending terms are too stringent or there is little awareness about the scheme among the target businesses.
It is important that the original ambitions of the scheme are achieved. Everyone acknowledges the importance of SMEs in the economy by creating the most jobs and contributing to tax revenues.
The challenges they face are also clear, led by difficulty in accessing capital to maintain and expand their operations.
Instead of being discouraged by the low uptake of the guaranteed loans, the Treasury should go back to the drawing board to find the causes and how they can be addressed.
It should also continue with its commitment to fully fund the scheme to unleash more lending capacity to SMEs, which were the hardest hit in the wake of the economic fallout brought by the Covid-19 pandemic.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
