Small and mid-sized firms are Kenya’s biggest employers. FILE PHOTO | NMG Small traders will from July get house loans from local banks at an annual subsidised interest rate of seven percent or nearly half the prevailing market rates.
This is part of a broader move to help them cope with Covid-19 pandemic related difficulties.
The affordable loans for small and micro firms are the product of a newly established credit guarantee scheme and Treasury-backed plan which will offer banks additional cash for onward lending to the small firms. Treasury will lend the money to financial institutions at subsidised annual interest rates, enabling them to offer loans at below seven percent — lower than the average market rate of 12.1 percent. The scheme is intended to help small traders like barbershops, hotels and pubs, which have had to close under coronavirus lockdown measures.
Similarly, the government will provide guarantees of loans given to Kenya-based small and medium-sized businesses, meaning the government commits to repay banks a share of the loans should the small traders default.
“We and our partners, including banks and institutions like the EU, will provide cash for onward lending at below seven percent,” Treasury Secretary Ukur Yatani told the Business Daily in an interview. “There is also an element of guarantees for loans disbursed to small traders and coming from commercial banks.”
In addition, 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 for the SME loans.
On Friday, the Central Bank of Kenya said that 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.
Despite the offers made by the Treasury to bail out the small firms, many of them have complained that loans are coming through too slowly and that some banks have imposed tough criteria on granting credit on fears of default in a business environment where companies have seen a plunge in sales due coronavirus restrictions.
Another stumbling block […]