Inside Politics

Treasury signals banks to open Sh3b tap for MSMEs

Wednesday, December 9th, 2020 00:00 |
Treasury CS Ukur Yatani (centre) witnesses as Credit Bank CEO Betty Korir (seated, left) and Treasury PS Julius Muia sign a credit guarantee scheme agreement in Nairobi yesterday. With them are Kenya Bankers Association Chair Joshua Oigara (standing left and Industrialisation PS Francis Owino. Photo/PD/GERALD ITHANA

Lewis Njoka @LewisNjoka

The government has set the stage for micro, small and medium enterprises (MSMEs) to access Sh3 billion in bank loans with immediate effect.

National Treasury Cabinet Secretary, Ukur Yatani launched the MSME Credit Guarantee Scheme (CGS), allowing banks to start lending to the sector.

Under the plan, the government will guarantee loans extended to MSMEs by some seven commercial banks it has partnered with, in a public-private partnership.

The institutions are KCB Bank, Co-operative Bank, Diamond Trust Bank, Absa Stanbic, NCBA and Credit Bank.

Commercial banks will conduct due diligence on borrowers in line with the Central Bank of Kenya prudential guidelines.Parliament has already approved Sh3 billion for disbursement, according Yatani.

Financial years

Under the  plan, the government expects that will be availed to the MSMEs over a period of two financial years, 2020/21 and 2021/2022.

The boost comes at a time when MSMEs are reeling from effects of the Covid-19 pandemic which has hit the sector hard. 

“Today marks a great milestone in the government’s endeavour to enhance affordable credit to by Micro Small and Medium Enterprises (MSMEs).

This is aimed at mitigating the adverse impacts of the Covid-19 pandemic on the business activities of the MSMEs and the economy at large,” Yatani said.

He said with reduced turnover and disruptions in the markets and supply chains, many MSMEs were unlikely to attract affordable and quality credit under the traditional arrangements.

“Interventions are therefore necessary to cushion the impact of Covid-19 on MSMEs,” he said.

The CS said the credit guarantee scheme will promote and anchor MSMEs in the mainstream economy describing it as a major engine for inclusive economic growth and development.

“It is important to remind ourselves, commercial banks and all other stakeholders that the success of the CGS is dependent on the dedication  of  all parties and I call on to play their roles expected including avoiding moral hazards to make this scheme a success,” he said.

Yattani spoke during the signing ceremony for MSME-Credit Guarantee Scheme at a Nairobi Hotel yesterday.

Speaking at the event, Kenya Bankers Association Chairman, Joshua Oigara, described the move as historic, saying there was no other way the government could achieve such a scheme unless via a public-private partnership arrangement. 

“About 30 to 40 per cent of the lending by banks goes to the MSME segment making it an important part of the economy,” he said.

The scheme is part of the government’s long term strategy to deliver credit to MSMEs and was part of the eight-point economic stimulus package announced by the President in May this year.

It supports other similar initiatives rolled out earlier such as the Youth Enterprise Development Fund, Uwezo Fund, and the Women Enterprise fund.

The 7.4 million MSMEs in the country play a key role in Kenya’s economic set up employing approximately 14.9 million people and contributing about 40 per cent of the country’s Gross Domestic Product (GDP), according to Treasury.

SME Performance index 2020, however, shows about 37 per cent of all MSMEs in Kenya scaled down since the first of Covid-19 pandemic in the country in March.

According to the report, many MSMEs dropped below Sh500,000 turnover due to the Covid-19 pandemic, causing businesses in the Sh1 to Sh500,000 band to increase contrary to the common trend where MSMEs in all the other bands were decreasing.

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