State rolls out credit guarantee for small businesses

In Summary
  • Basically, the scheme will act as cover for credit default risks by local enterprises and will allow banks to lend to MSMEs. 
  • The European Union has already committed €100 million (Sh11.7 billion)
Treasury CS Ukur Yatani.
Treasury CS Ukur Yatani.
Image: FILE

The National Treasury and local lenders have opened a credit line to bail out small businesses affected by Covid-19.

The small and medium enterprises (SME) credit guarantee scheme will  see the state insure part of risks undertaken by commercial banks in advancing loans to SMEs.


National Treasury Cabinet Secretary Ukur Yatani said the disruption caused by the virus deeply affected small businesses that would unlikely attract affordable and quality credit under the traditional arrangements.

“This is in line with best practice in other regions where credit guarantee schemes have been used successfully to improve access to credit by MSMEs,'' Yatani said. 

The government has set aside Sh3 billion as seed capital for the creation of the SME scheme with additional financing which presently stands in excess of Sh20 billion coming from partner financial institutions and development partners.

The operation of the scheme is guided by the Public Finance (Amendment) (No.2) Act, 2020 which hands the power to the Cabinet Secretary of the National Treasury to oversight the fund’s day-to-day operations.

Only enterprises that fall under the SME definition as given under the Act stand to qualify for the guarantees.

Firms accessing the guarantees are capped under the definition of medium enterprises which refers to businesses employing between 50 and 250 persons and a turnover not exceeding Sh150 million.

The European Union has already committed €100 million (Sh11.7 billion), boosting the State-backed credit guarantee scheme.


This is not the first time the country is mulling such a programme which has been implemented well especially in Europe and Asia. 

The Treasury first floated the proposal for a credit guarantee scheme in May 2018 as part of an effort to reduce the SMEs risk profile and ease access to credit.

The Central Bank of Kenya has been pushing for the speedy roll-out of the fund in a bid to help SMEs hard-hit by the Covid-19 pandemic to stay afloat.

According to the National MSME survey conducted in 2016, the MSME sector employed about 14.9 million persons in 2015, arguably providing the highest number of employment opportunities in Kenya.

Earlier this year,  Treasury said most MSMEs face credit challenges due to the nature of having non-bankable collateral.

This, as the  Kenya Private Sector Alliance (Kepsa), revealed that there is a Sh1.9 trillion financial gap and a potential demand of Sh2.4 trillion, making a case for the establishment of the scheme.

Almost all tier-one lenders are supporting the programme.