Sh10bn Covid cover for SMEs

The Treasury will now provide Sh10 billion to guarantee commercial loans for small and medium enterprises (SMEs) in a bid to cushion them from the economic fall-out arising from the coronavirus pandemic.

The funds will be disbursed in two tranches of Sh5 billion each in the year to next June and the other in the 2021/22 period were approved Thursday during a Cabinet meeting.

Under the scheme, the State will pay an undisclosed percentage of the losses in case an SME defaults on a commercial loan, a move that reduces the risk associated with lending to small businesses.

Treasury had initially said it will provide Sh3 billion as seed capital for the Credit Guarantee Scheme but the increase of Sh7 billion will cover more small businesses seeking commercial loans.

President Uhuru Kenyatta said the State is eyeing Sh100 billion for the scheme with more funds to be raised from international financiers.

The State will under the scheme provide third-party credit risk mitigation to commercial banks by absorbing a portion of losses on SME loans in the event of default.

“Cabinet approved the establishment of a Credit Guarantee Scheme with an initial seed capital of Sh10 billion to be capitalised in two tranches of Sh5 billion in the Financial Year 2020/21 and Financial Year 2021/22,” President Kenyatta said.

“The Credit Guarantee Scheme is expected to be operationalized by mid-October, 2020.”

Roll-out of the fund comes at a time most small businesses have taken a hit from the coronavirus disease leading to job-layoffs, salary cuts and closures due to dwindling revenue streams.

Businesses like restaurants, bars and retail stores are already struggling with a decline in customer demand, repayment of bank loans, rent and utility bills fuelling worries of a spike in non-performing loans.

Parliament is debating the Public Finance Management (Amendment) Bill, 2020 that will anchor the roll-out of the scheme.

SMEs must have an annual turnover of not more than Sh100 million and a workforce of between 51 and 250 workers to qualify for the loans cover.

The EU has committed €100 million (Sh11.7 billion), boosting the State-backed credit guarantee scheme.

The Central Bank of Kenya has been pushing for the speedy roll-out of the fund in a bid to help SMEs hard-hit by the Covid-19 pandemic.