• Proposal to go through first reading on Wednesday.
• SMEs have been hard hit by the Covid-19 restrictions.
Image: PSCU
President Uhuru Kenyatta’s administration has begun to roll out multi-billion shilling credit guarantee scheme for small and medium enterprises.
This is to cushion the SMEs from the effects of the Covid-19 pandemic, which has taken a toll on the businesses, lowering the GDP and worsening the country’s unemployment crisis.
The Central Bank of Kenya in May warned that at least 75 per cent of SMEs risk closure due to lack of funds.
The government intends to reverse the situation by extending the guarantees to private borrowers.
The guarantees will be partial, with the amount to be decided for each firm.
President Kenyatta in April announced a Sh3 billion SME credit guarantee scheme as part of his economic stimulus package to resuscitate the economy.
SMEs were also targeted in the Sh10 billion allocated to the Kenya Revenue Authority for outstanding Value Added Tax refunds.
The Jubilee administration also released to the banks Sh35.2 billion in March after the CBK lowered the cash reserve ratio.
A government bill sponsored by Majority leader Amos Kimunya outlines the structure of the credit guarantee scheme to rescue the struggling SMEs.
The Bill seeks to amend the Public Finance Management Act, 2012, to give Treasury Cabinet Secretary powers to guarantee loans advanced to the micro, small and medium enterprises.
The Bill will be read for the first time on Wednesday when MPs converge for a special sitting called by Speaker Justin Muturi.
Firms, traders, service industries, manufacturers or businesses with annual turnover not in excess of Sh100 million will qualify.
To be considered SMEs must have between 51 and 250 employees and have total assets and financial investment that can be determined by the Treasury CS.
Those in the manufacturing sector with investment – plant, machinery and capital - that does not exceed Sh250 million are eligible.
The service sector and farming enterprises with less than Sh125 million capital will also be eligible for the loans.
SMEs will be required to comply with tax laws, be registered by a county government and hold a valid business permit and trade license.
“A guarantee for credit extended to a micro, small, or medium enterprise shall be for a portion of the credit,” the Bill reads.
Treasury will form a credit guarantee scheme and prescribe regulations governing the kitty should MPs pass the Bill.
This will be for partial mitigation of default risks for credit extended to the entities, now suffering because of the Covid-19 situation.
Treasury’s regulations will be expected to provide for the institutions that will be eligible to extend credit to SMEs and the enterprises that qualify.
It will also define the conditions for a grant as well as the proportion of security for the credit that SMEs shall provide before being granted a guarantee.
The regulations will also provide for the types of credit extended to SMEs and the periods for which guarantees shall be applicable.
“The regulation will also provide the circumstances under which a credit guarantee shall be liquidated if a borrower defaults on credit that was guaranteed,” the Bill reads.
Treasury will give Parliament, on request, information relating to the guarantees, among them the total value given during a period.
Details of liquidated guarantees, outstanding credit, risk assessment and any other relevant information will also be provided.
According to the KNBS 2019 survey, Kenyan SMEs contribute 33 per cent of the Gross Domestic Product and are a main jobs driver.
(Edited by V. Graham)