• Credit Guarantee scheme is set to provide reliefs to small business hurt by Covid-19.
• Initiative is part of President Uhuru Kenyatta's reliefs to micro, medium, and small enterprises.
A Sh5 million fine or a two-year jail term awaits persons who divert proceeds of credit guarantees extended by the government to cushion struggling SMEs.
The Public Finance Management (Credit Guarantee Scheme) Regulations, 2020 make it illegal to use the guaranteed credit for other purposes other than that for which it is approved.
The fine would also apply to those who destroy or misappropriate any security given in relation to the guaranteed facility.
Micro, medium and small entrepreneurs who knowingly give false information or wilfully destroy any asset used as collateral by a financial intermediary will also be fined.
In the event of such crime by a corporate entity, the director, general manager, secretary of the company or officers purporting to act in such capacity will be charged.
The regulations drafted by Treasury Cabinet Secretary Ukur Yatani seek to create a legal basis for extending the credit guarantees once the legislation is approved by the National Assembly.
He revealed that the government will no longer extend direct support to micro, small, and medium enterprises once the credit guarantee scheme is rolled out.
The credit guarantee scheme is part of the eight-point economic stimulus package by President Uhuru Kenyatta to help small businesses remain afloat and weather effects of Covid-19.
Yatani, in notes on the regulations, says direct lending to MSMEs through development funds has yielded minimal results.
The CS said the old system had cases of high repayment defaults, duplication of roles among the funds, low uptake by the targeted groups and governance challenges.
“It is against this backdrop that the credit guarantee framework was developed,” Yatani said.
The proposed arrangement would thus enable the financial institutions to extend credit to MSMEs that are perceived to be risky.
“The effect of the charge will be affordable credit to MSMEs to enhance growth and sustainability of their enterprises,” Yatani said.
The regulations provide that MSMEs that are registered as a business or company will be eligible for credit support.
The targeted entities will have to prove their creditworthiness and satisfy any conditions set by the team managing the funds.
MSMEs registered by a county government and hold a valid business permit or trade licence will be eligible for the credit cover.
Entities will be checked for compliance with relevant tax laws and must not be part of enterprises that are not eligible for credit guarantee under the set rules.
Traders will be guaranteed in efforts to raise working capital, acquire assets, and rebuild businesses affected by natural disasters or other financial crises.
Only a portion of the credit will be guaranteed in the regime which locks out risks already covered by the government, insurer or indemnity.
The scheme will be managed by a steering committee comprising Treasury PS, PS in ministry dealing with MSMEs, attorney general, governor Central Bank or their representatives, and three independent members who are not public officers.
Of the three, it would be required that one person possesses banking and finance experience; insurance; and a successful medium-sized entrepreneur.
The committee members, who will evaluate bank and non-bank institutions participating as financial intermediaries, will be required to possess a degree in a relevant field from a recognised university and be of integrity.
The Treasury Cabinet Secretary or any other person designated by the CS will be the administrator of the scheme.
Day to day operations will be undertaken by a scheme manager and staff appointed by the Cabinet Secretary from among officers at the Treasury.