The government is on course to enable Micro, Small, and Medium Enterprises (MSMEs) to access quality and affordable credit facilities through a draft Credit Guarantee (CG) policy.
The government first established a Credit Guarantee Scheme in 2020 that facilitated private sector lending to 4,078 MSMEs, amounting to approximately Sh6.18 billion in all sectors of the economy as of December 31, 2023.
Speaking during a public participation forum on the policy organised by the National Treasury, Mombasa Island Assistant County Commissioner Robin Ngeiyo noted that the MSMEs sector is bedevilled with competition, cheap imports, and a lack of security to access loans.
The policy, Ngeiyo said, will, when passed, address challenges facing MSMEs and unlock the potential of the sector that employs millions of Kenyans.
Anthony Njeru from the Ministry of Cooperatives and MSMEs stated that most Kenyans are facing hurdles to accessing credit since most of the commercial banks cannot lend to MSMEs due to a lack of collateral.
Since the scheme was established four years ago, Njeru noted that many MSMEs have accessed finance through a partnership with seven commercial banks.
“The policy will facilitate the establishment of a CG company to guarantee loans and a credit guarantee ecosystem,” said Njeru.
According to the Economic Survey 2023, MSMEs provided employment opportunities for 16 million people, with over 700,000 jobs created in 2022, constituting 86.1 per cent of all new jobs in the market.
Most MSMEs face numerous impediments in accessing credit due to a lack of sufficient collateral, informality, information asymmetry, stringent loan requirements, capacity challenges for business management, and the relatively high cost of credit.
CGs mitigate the risk of default by borrowers by guaranteeing an agreed-upon portion of the loan advance.
To ease access to credit by MSMEs, the policy provides for CGs to come up with clear and transparent operational processes and conditions, eligibility criteria for beneficiary enterprises, and claim validation.
To address information asymmetry between lenders and MSMEs for ease of access to credit, the government will establish MSME outreach centers, provide support in building the capacity of MSMEs to encourage their formalisation, and create a database for all MSME.
It will also strengthen credit information sharing mechanisms, support the harmonisation of business registration requirements in all counties, and support the digitization of MSME business registration services and integration with financial institutions.
To facilitate access to quality and affordable credit for MSMEs, the government will support the establishment and operationalization of a company or a special purpose vehicle with a minority Government shareholding to lead effective and efficient delivery of Government-linked credit guarantees to MSMEs.
Godfrey Nato, a Changamwe resident, lauded the proposed establishment of a government credit company since it will secure loans for MSMEs, as many don’t have log books or title deeds.
“The company will address the challenge of security, as many MSMEs have been exploited by shylocks,” said Nato.
Charles Njenga said public participation should also be conducted at the grassroots, where the majority of MSMEs are found.
On her part, Priscah Odhiambo said the policy will uplift the lives of small business women who have been at the mercy of exploitative lenders.
By Sadik Hassan
