World Bank lends Equity Sh5 billion for SME loans

Equity Bank Kenyatta Avenue Branch in Nairobi. FILE PHOTO | NMG The Kenyan banking subsidiary of Equity Group #ticker:EQTY is set to receive a $50 million (Sh5.3 billion) loan from the private sector arm of the World Bank for onward lending to small businesses hurt by the global Covid-19 pandemic.

The International Finance Corporation (IFC) made the disclosure of the multi- billion shilling support to Equity Bank, which has taken a cash preservation strategy, including recalling Sh9 billion in dividends and dropping the purchase of four banks outside Kenya.

The new loan will allow Equity Bank to maintain lending to the risky small traders and firms, who have been hard hit by the economic effects of the Covid-19 pandemic — lowering their ability to save and tap loans.

“The proposed IFC investment is a senior loan of up to $50 million (Sh5.3 billion) with a tenor of one-year renewable,” IFC said in its investment disclosures.

“The investment will help expand the bank’s lending operations to the micro small and medium enterprises (MSMEs) segment in Kenya, especially to companies whose cash flows have been disrupted by the outbreak of the coronavirus pandemic.”

The new loan will cement IFC’s position as the biggest lender to the country’s second-largest bank by assets.

Equity had borrowed a cumulative Sh17.4 billion from the global financier as of December 2019 and the upcoming credit line will raise the total to Sh22.7 billion.

Small firms, which rely heavily on bank loans for growth and working capital, are among the victims of measures taken to control the spread of the coronavirus that was first reported in the country in mid-March.

These include a national night curfew, ban of international travel, closure of bars, schools and cessation of movement into and out of counties hit hard by the disease, including Nairobi and Mombasa.

Banks, which have so far restructured loans worth Sh679 billion or 23.4 percent of their loan book in Kenya due to the pandemic, have become more cautious about extending new credit lines. The Central Bank of Kenya has warned that small and medium businesses need urgent help to survive the economic slowdown caused by the novel coronavirus, and many are at risk of shutting down.

IFC says the new credit facility will empower Equity, which channels about 65 percent of its loan book to SMEs, to make new loans to customers.“By sustaining the bank’s ability to provide working capital and trade finance, IFC’s facility is […]

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