I&M Bank has secured a $40 million (about Sh4 billion) loan from the Dutch Development Bank (FMO) for onward lending to small business (SMEs) in what is expected to boost their operations currently hampered by cautious loaning.
While announcing the long-term funding, FMO said the facility would uplift I&M Bank’s lending to the small enterprises.
“By supporting the expansion of its operations, FMO can help give the local economy an extra boost,” said FMO's chief investment officer Linda Broekhuizen in a statement.
The loan whose interest rate was not disclosed has a five-year tenor.
FMO said I&M has a loan portfolio of about Sh121.1 billion of which almost 30 per cent consists of credit to SMEs.
Kenyan banks have in recent years taken substantial loans from global funds, including the International Finance Corporation (IFC), European Investment Bank (EIB), Agence Française de Développement (AFD) and the African Development Bank (AfDB), attracted by relatively more favourable terms of debts like lower interest rates and longer maturity.
Co-op Bank #ticker:COOP, KCB #ticker:KCB and Equity #ticker:EQTY are among the lenders that have borrowed from international financiers to fund their long-term lending business.
Lenders have previously complained of a mismatch between long-term loans and deposits that are mostly short term, exposing a gap that they have chosen to fill with credit from international institutions that charge single-digit interest rates.
International borrowing has also gained ground after the local corporate bond market was shaken by the collapse of former Chase Bank and Imperial Bank, which owe bondholders nearly Sh10 billion, excluding interest.
In February this year, Co-op Bank said it obtained a $150 million (Sh15.2 billion) seven-year loan from the World Bank arm IFC for lending to small companies.
In October last year, KCB, the country’s largest bank by assets, said it had secured a $100 million (about Sh10.37 billion) loan from AfDB for onward lending to SMEs.
The small business has been hit hard following the September 2016 ceilings on loan charges at four percentage points above the Central Bank Rate, now at nine per cent.
Most lenders in the risk-averse industry have suspended unsecured personal loans due to perceived higher risk of default.
This has been exacerbated by higher impairment costs as a result of global accounting rules enforced last January.
Private sector credit grew 4.3 per cent in the 12 months to August, but the increase remained below the central bank’s target rate of 12-15 per cent.