Micro, Small, and Medium Enterprises (MSMEs) are set to benefit from easy access to loans through credit guarantors, when a new bill is passed and enacted.
The draft bill, credit guarantee policy, and Amendments to the CBK Act, aim to establish a strong, competitive, and inclusive financial sector for MSMEs, promoting a conducive policy and regulatory environment for credit guarantees.
The act aims to boost MSMEs’ access to quality and affordable credit, thereby enhancing their economic participation.
Speaking at a public participation forum in Garissa, Antony Njeru, a Principal Economist at the State Department for MSME at the National Treasury, said that Credit guarantee companies who will be licensed by the Central Bank of Kenya will work with lending institutions to guarantee loans for small and medium business owners.
Due to the moral hazard that people may fail to repay the loans when guaranteed by the government, the banks will look at the credit scores of those seeking financing and determine whether to involve the credit guarantors or not.
According to Njeru, the banks will judge if a client can be able to repay a loan or not, and those that the banks think that they may have difficulties in repaying are the ones to be referred to credit guarantee companies.
“SMEs have been having a challenge to access loans from banks. This policy will create a Kenya Credit Guarantee Company, which will guarantee business communities who are seeking loans from the banks. This will help those who have low credit scores,” Njeru said. Meanwhile, MSMEs contribute 34% to Kenya’s GDP and employ over 16 million Kenyans. Credit access aims to boost their monthly earnings to Sh50,000.
According to the International Finance Corporation (IFC), the financing gap for MSMEs in Kenya is about Kshs.4 trillion, out of which banks will lend only Kshs.783.3 billion in 2022. The majority of MSMEs heavily depend on loans from informal sources such as chamas, family, and friends, with very low reliance on formal sources such as commercial banks, SACCOs, and microfinance institutions.
Garissa County Commissioner Mohamed Mwabudzo, who officiated the forum, said that the government has created a conducive environment for businesses to grow through various financing options, such as the Hustler Fund, the Youth Fund, and the and the Uwezo Fund, among others. Thus, he encouraged MSMEs to take advantage of these facilities to grow their businesses and contribute to the growth of the national economy.
By Erick Kyalo
