CBK and lenders to work together to guarantee SME loans

The Central Bank of Kenya will licence credit guarantee companies who will work with lending institutions to ensure small and medium business owners secure loans. 

Antony Njeru, a principal economist at the state department for MSME at the National Treasury said banks will judge if a client can be able to repay a loan or not.

Those that the banks deem may have difficulties in repaying will be referred to the credit guarantee companies.

“SMEs have been having a challenge to access loans from banks. This policy will create a Kenya Credit Guarantee Company which will guarantee business communities who are seeking loans from the banks. This will help those who have low credit scores,” Njeru said at a public participation forum in Garissa.

“Currently, MSMEs are contributing about 34 per cent to the Gross Domestic Product of our economy. This sector also employs more than 16 million Kenyans and we hope that this credit access will improve their earning to at least Sh50,000 a month,” he added.

The draft bill, which is currently at the late stages of public participation, seeks to provide a conducive policy, legal and regulatory environment for credit guarantee. 

The credit guarantee policy and Amendments to CBK Act aims at promoting the development of a strong, competitive and inclusive financial sector as a key component of an enabling environment for MSMEs.

The act will also incentivise financial institutions to unlock quality and affordable credit to MSMEs and enhance their participation in economic activities.

County commissioner Mohamed Mwabudzo, who officiated the forum, said the government has created a conducive environment and provided various financing options such as the Hustler fund, Youth fund and Uwezo fund, among others.

He encouraged MSMEs to take advantage of these facilities to grow their businesses and contribute to the growth of the national economy.

The International Finance Corporation shows the financing gap for MSMEs in Kenya is at about Sh4 trillion.

Banks lent only Sh783.3 billion in 2022, and the majority of MSMEs heavily depended on loans from informal sources such as chamas, family and friends.

There was very low reliance on formal sources such as commercial banks, Saccos and microfinance institutions.