CREDIT

Lending to small businesses growing at annual rate of 16% - CBK

The Kenyan banking sector’s total net assets stood at Sh5.4 trillion by end of last year

In Summary
  • There were 915,115 active MSME loan accounts in the banking industry as at December 2020
  • MSME borrowers took 30 months to repay loan facilities
CBK Headquarters
CBK Headquarters
Image: FILE

The era where commercial banks shied from lending to small businesses in Kenya seems to be ending if the latest report by the Central Bank of Kenya is anything to go by. 

According to the latest FinAccess survey by CBK focusing on lending to MSMEs, the number of MSME loan accounts and loan values have been growing at an annual average of 12 and 16 per cent since 2017. 

According to the report, there were 915,115 active MSME loan accounts in the banking industry as of December 2020, with a total value of Sh638.3 billion; a 42 per cent increase from 646,018 active loans accounts valued at Sh413.9 billion as at the last MSME lending survey in December 2017.

The proportion of the MSME loan portfolio to the total banking sector loan book as of December 2020 stood at 20.9 per cent compared to 19.2 per cent as at the end of 2017.

Commercial banks and mortgage finance institutions held 67 per cent of the total MSME’s loan accounts in the banking sector during the period under review while microfinance banks held the remaining 33 per cent.

On a collective basis, 83 per cent of total loan accounts were held by micro-enterprises, 12 per cent by small enterprises and five percent by medium enterprises.

Loans from commercial banks as of December 2020 averaged Sh86,000, Sh2.9 million and Sh7.7 million for micro, small and medium enterprises respectively.

This compares to Sh498,651 (micro), Sh3.2 million (small) and Sh14.4 million (medium) in 2017. 

Average loans from microfinance banks in 2020 stood at Sh23,000, Sh400,000 and Sh4.5 million for micro, small and medium enterprises respectively.

This compares to Sh131,895 (micro), Sh1.25 million (small) and Sh4.2 million (medium) in 2017.

The reduction in the average loan size is largely attributable to a differential increase in the value of the loan portfolio as compared to the number of loan accounts.

Lending to MSMEs generated Sh70.8 billion for the banking industry, representing 12.2 per cent of the total income generated from lending by the banking industry.

However, this was a proportionate drop from the Sh74.1 billion (or 15.2 per cent) recorded in the year 2017.

''The proportion of MSME loan accounts to the overall banking sector loan accounts was relatively constant at eight per cent in 2020 and 8.3 per cent in 2017,'' CBK report shows. 

On average, MSME borrowers took 30 months to repay loan facilities as of December 2020, compared to 2017 where the average loan tenor for MSMEs ranged from 15 to 40 months.

Loans to micro-enterprises had the shortest average repayment period at 18 months, with small and medium enterprise loans taking 30 and 41 months, respectively, to repay. 

The average interest rate on MSME loans ranged from 10 percent to 21 percent in 2020, with commercial banks and microfinance banks charging averages of 12 and 15.6 per cent respectively.

Average interest rates per institutional category were 16.6 per cent for micro-enterprises, 12.4 per cent for small enterprises and 12.3 per cent for medium enterprises.

A total of 72,559 MSME loan facilities in the banking industry valued at Sh234.7 billion were restructured in 2020 as a measure to reduce the impact of the Covid-19 pandemic on MSME borrowers.

These constituted 0.6 percent of total loan accounts and 7.8 per cent of the total value of the gross loan portfolio as of December 2020.

By comparison, in 2019, commercial and microfinance banks restructured a total of 4,348 loan facilities valued at Sh20.6 billion.

These constituted approximately 0.05 per cent of total loan accounts and 0.8 per cent of the total value of the gross loan portfolio as at December 2019.

Of the 915,115 MSMEs loan accounts in the banking industry, 204,802 accounts valued at Sh98.7 billion were classified as non-performing.

This amounted to 22.4 percent of total MSME loan accounts and 15.5 percent of the total value of outstanding MSME loans.

Non-Performing Loans (NPLs) in MSMEs also made up 22 per cent of total banking industry NPLs estimated at Sh436 billion.

This is significantly higher than the NPLs for MSME loans in December 2017 which stood at Sh56.4 billion or 13.6 percent of the overall MSME loan portfolio of Sh413.9 billion.

 A total of 6,253 MSME loans valued at Sh2.6 billion were written-off, with commercial banks and microfinance banks writing off Sh2.3 billion and Sh0.29 billion, respectively.

The total accounts are written off constitute 0.6 per cent of total MSME loan accounts and 0.4 per cent by value.

As of December 2020, the Kenyan banking sector’s total net assets stood at Sh5.4 trillion, with gross loans and advances accounting for Sh3.1 trillion. Total customer deposits were Sh4.1 trillion.

Total loan accounts stood at 11.4 million while the total number of deposit accounts (in both commercial and microfinance banks) stood at 72.5 million.