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Kenya banks to get Sh17bn SME loans risk guarantee


Africa Guarantee Fund Deputy CEO Jules Ngankam. FILE PHOTO | NMG

African Guarantee Fund (AGF) has set aside $170 million (Sh17.1 billion) to back Kenyan bank lending to small and medium-sized enterprises (SMEs) through a scheme that will insure the lenders against defaults.

AGF typically guarantees half of the value of a loan balance to a single SME borrower or half the value of an outstanding SME loan portfolio and charges banks a fee of between 1.5 percent to three percent for the risk guarantee.

Some of the local lenders that have struck such deals with the institution include NIC Bank and Ecobank.

“The current pipeline is $170 million (Sh17.1 billion) for Kenya. This will enable the banks to on-lend at least $340 million (Sh34.3 billion) to the country’s SMEs,” AGF told the Business Daily.

The institution declined to specify the banks that are set to sign the risk mitigation deals.

AGF has so far issued risk guarantees to Kenyan banks amounting to $51 million (Sh5.1 billion).

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.

AGF deputy chief executive Jules Ngankam told the Business Daily that the institution had experienced a default rate of two percent on average for the SME loans it insures.

The Mauritius-based institution is owned by a group of multilateral lenders and sovereign wealth funds, including the African Development Bank, Agence Française de Développement and the Danish International Development Agency.

AGF, which has an office in Nairobi, earns about 70 percent of its income from the risk guarantee business.

The government and other stakeholders have recently focused on means of expanding loans to SMEs in the wake of control of lending rates that saw banks respond with major rationing of credit to this group of prospective borrowers.

The government, World Bank and International Finance Corporation are, for instance, setting up multi-billion-shilling loan pools aimed specifically for SMEs.

Prior to the rate caps, banks were able to accommodate riskier borrowers including SMEs by charging them higher interest rates according to their risk profiles.