Owners of Micro, Small and Medium Enterprises (MSMEs) in Nakuru County want the proposal to guarantee their loan facilities extended, even as the government moved in to cushion lenders against defaulters.
The traders proposed that loans extended for startups and those in the sector be covered up to 75 percent of the borrowed amount as a way of assuring the lenders of lesser risks, hence more capital for their ventures.
Speaking in Nakuru, during a public participation forum that sought their views into the Credit Guarantee Policy, the traders decried harassment by shylocks who extended loans at exorbitant interest rates, noting that the government’s guarantee was a step to stabilise the sector.
“Most traders have had to close down due to heavy interest rates demanded for their loans, which are not sustainable with the current economic situation. Many have lost their equipment and assets to auctioneers in the process,” added Erick Mzalendo.
The traders called on the government to stretch the proposed cover of 25 percent to between 30 and 75 percent as a way of ensuring that the borrowers also enjoyed lower interest rates in the long run, decrying chocking rates.
Nakuru Senior DCC Obed Mose, regretted that most enterprises closed shop before their fourth birthday, noting that stringent loan requirements including the need for traders to have collateral, hindered them from expanding their ventures despite their great contribution to the economy.
“MSMEs have innovative approaches that have the potential to support up to 16 million jobs indirectly with 86 percent of new jobs being created today being from this sector,” added Mose.
The World Bank estimated that up to 68 percent of MSMEs in emerging markets are either unserved or underserved by financial institutions, with the move to guarantee their loans expected to bridge the gap.
The proposals under the Credit Guarantee Scheme, also proposes the formation of a Credit Guarantee Company. With the government having a minimal shareholding, as a way of assuring the participating financial institutions of the safety of their loans.
“With time, this is a company that will be listed at the Nairobi Securities Exchange, but initially the government has some money to put in,” remarked Aleke Dondo, an Independent Member of the Credit Guarantee Scheme Board.
Dondo noted that the move will expand the scheme, currently being housed at the treasury, to bring on board the private sector players, aimed to improve access to credit by MSMEs, with Sh6 billion already having been extended to the sector during the pilot stage.
“We are targeting to have a scheme that would be inclusive enough to bring all on board in terms of access to credit, while assuring a 25 percent guarantee to loans extended to this sector. The scheme is also favourable to Islamic Banking and will also give priority to Youths, Persons With Disability as well as Women Owned Enterprises,” noted Esther Kitonyi, from the National Treasury.
Kitonyi noted that all the views will be considered, with proposals pointing at a plan to categorise vulnerable groups. Manufacturers, she added, are expected to get more guarantee for the purchase of machineries and plants, to give a boost to the manufacturing sector.
By Anne Sabuni
