National Treasury has allocated KSh3 billion seed capital to operationalize the credit guarantee scheme for small and medium enterprises (SMEs).
Treasury Cabinet Secretary Ukur Yatani said the scheme will enable the provision of affordable credit to SMEs in an efficient and structured manner.
“Despite their important contribution, this sector has continued to face challenges of accessing credit, due to lack of sufficient collateral, high cost of credit, and informal business structure. These challenges have been worsened by the Covid-19 Pandemic,” Yatani said.
“In order to de-risk lending to the Micro, Small Medium Enterprises, I have set aside Sh3.0 billion seed capital to operationalize the Credit Guarantee Scheme,” he said.
Phyllis Wakiaga, Chief Executive Officer of the Kenya Association of Manufacturers (KAM), says the Credit Guarantee scheme is a welcome move but needs to be beefed up.
“We have seen the government put up about Ksh 300 billion and Ksh 712 million towards manufacturing SMEs. This is a good start, but it needs to be beefed up because the amount might not be adequate for the number of SMEs that will be suffering this time. We are really really positive that the development finance institution (DFI) and other development partners will be able to put in more funds so that we can have our SMEs cushioned and supported during this time,” said Wakiaga.
Wakiaga also noted that the scheme will derisk to the commercial banks which will be an incentive for them to lend more to the sector.
Kenya Association of Manufacturers (KAM) and KPMG report on the impact of Covid-19 on manufacturers in Kenya found out that 37 percent of SMEs have scaled-down production.
On the other hand, 79 percent of surveyed companies are experiencing cash flow constraints, with 86 percent of SMEs facing the same challenge which is affecting their ability to meet tax obligations, pay employees, or pay operating costs.
In May, Central Bank of Kenya (CBK) Governor Patrick Njoroge said by end of June, small businesses would have collapsed underscoring the urgent need to have the SME credit guarantee scheme in place. He said the “matter is dire.”
“If we don’t have a scheme urgently, the matter will only get worse. That is how critical the SME issue is,” Dr Njoroge Patrick had said.
During its launch, President Uhuru Kenyatta said the scheme is aimed at deepening SMEs’ access to credit without being subjected to complex application procedures and collateral requirements.
The SME credit guarantee scheme will receive funding from the National Treasury and will repay banks in case SMEs default on their loans.