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Economy

Treasury to auction assets of defaulters in State credit scheme

The National Treasury building
The National Treasury building. FILE PHOTO | NMG 

Treasury will seize and auction goods of businesses that will defaults on bank loans guaranteed by State under the upcoming scheme that seeks to ease credit access for risky borrowers.

The seizure order is contained in proposed changes to the Public Finance Management Bill, 2020, which will guide the State-backed guarantee scheme, by the National Assembly Committee on Finance and National Planning.

Under the scheme, the government will provide guarantees of loans given to Kenya-based small and medium-sized businesses, meaning the State commits to repay banks a share of the loans should the small traders default.

The committee has made changes to the Bill targeted at small and medium-sized businesses and demand that defaulting traders repay their loans within six months or have their assets seized and auctioned.

Under the scheme, Treasury will provide third-party credit risk mitigation for SMEs seeking bank loans to remain afloat amid the coronavirus economic meltdown.

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“The amendment is to require that the Cabinet Secretary in making regulations should provide for affirmative measures for recovering the money where a credit guarantee is liquidated… a limit on the period of default is a maximum of six months,” says the committee, chaired by Homa Bay Member of Parliament Gladys Wanga.

Lawmakers also directed Treasury to disclose the maximum percentage of the losses it will absorb on loan in case of a default in a move aimed at reducing the taxpayers’ risk.

The Treasury has offered Sh3 billion as seed capital to kick-start the scheme that has received a €100 million (Sh11.7 billion) commitment from the European Union while commercial banks will top up additional sums. The Central Bank of Kenya said the World Bank and the Africa Development Bank were also coming on board on the guarantee scheme.

Small and mid-sized firms are Kenya’s biggest employers and the Treasury has tipped them to get back to hiring in an environment where big companies are shedding jobs and freezing fresh employment.

Small firms, especially those in informal sectors, account for the bulk of jobs in Kenya and have in recent years emerged as the biggest drivers of new hiring.

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