CBK roots for Treasury SMEs credit guarantee

The Central Bank of Kenya (CBK) is calling for the speedy establishment of a credit guarantee scheme to shield lenders and small businesses against the economic effects of the Covid-19 pandemic.

Under the proposed scheme, the Treasury said last year it would provide third-party credit risk mitigation to commercial banks by absorbing a portion for losses on small and medium-sized enterprises (SMEs) loans in the event of default.

“Given the critical role of micro small and medium-sized enterprises (MSMEs) in the economy, there is an urgent need for more interventions to support the sector, such as by a credit guarantee scheme to de-risk lending by banks and increase credit uptake in the sector,” said CBK governor Patrick Njoroge following a Monetary Policy Committee meeting on Wednesday.

The Treasury first floated the proposal for a credit guarantee scheme in May 2018 when it said it would guarantee commercial bank loans to SMEs as part of an effort to reduce the risk profile, keep loan prices low and to ease access to credit.

Credit to the private sector, the CBK said, grew by 8.9 percent in the year to March, compared to 7.7 percent in the year to February, which is both below the ideal growth level of between 12 and 15 percent to support economic growth.

“To enhance access to credit, the government will expedite the development of a credit guarantee scheme, which will enhance access to credit by micro, small and medium enterprises and marginalised groups and regions,” the Treasury said last year in an update.

The CBK reminded borrowers facing Covid-19-related challenges, whose loans were performing on March 2, to approach banks and discuss restructuring options amid tough measures by banks to qualify for the relief.

Most banks have asked borrowers seeking to defer repayment of loans to provide letters from employers showing proof of salary cuts or job termination as a condition to be considered for the relief.

“You may visit any nearest branch to request for a loan relief through our loan officers. You will require a letter from your employer indicating a salary cut or job termination,” Co-operative Bank said in a notice to customers.