Banks open year with billions for lending to SMEs

Banks open year with billions for lending to SMEs

Post Bank headquarters banking hall. [Wilberforce Okwiri, Standard] Large lenders — including Equity, KCB and Cooperative Bank of Kenya — have borrowed billions of shillings to support small entities in the wake of Covid-19 disruptions .

Now, these banks are facing the test of their promise in the new year with Equity having continued with the trend thanks to a $165 million (Sh18.6 billion) loan for the Kenyan unit.

Part of the money will be used to lend to micro, small and medium-sized enterprises (MSMEs) and adds to the billions of shillings the lender has tapped as long-term loans since Covid-19 struck in early 2020.

Equity’s long-term borrowing for instance jumped by Sh46.59 billion between the onset of the pandemic in March 2020 and the end of September last year to hit Sh99.18 billion, with the lender pledging support to MSMEs.

KCB Group has also taken the same direction, tapping into long-term loans from lenders such as International Finance Corporation (IFC).

Where banks are getting money

Local banks are increasingly taking loans from global funds, such as the IFC, European Investment Bank (EIB) and Agence Française de Développement (AFD). KCB’s borrowed funds have grown from Sh21.96 billion at the end of March 2020 to Sh35.27 billion last September, with a target on MSMEs seeking recovery from Covid-19 disruptions.

Group CEO Joshua Oigara said the lender has launched an ambitious project on SMEs and estimates that the bank will more than double SME lending by between Sh50 billion and Sh60 billion this year.

“We know the SMEs we are dealing with and we have the opportunity to increase the size of the portfolio,” said Oigara.

“It is about finding short-term lines of credit that enable them to meet cash flow needs and also increasing their credit limits.”

Oigara has also increased loan approval limits at branch levels to support SMEs. Where the lender had Sh1 million limits, Oigara says Sh3 million is now a possibility.However, as banks make these steps to increase lending to small firms, a disconnect exists between the SMEs portfolio and the billions amassed for lending to such entities.It is a problem that Oigara wants KCB to overcome this year and cut the time between application and approval from 14 days to seven days.“The (Covid-19) crisis in 2020, in particular, created some delay. But there is more than just lending. We are doing training and capacity building to create a network of enterprises,” he said. […]

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