Loans disbursed under the State-backed credit guarantee scheme have stagnated at Sh6.3 billion, mirroring the lackluster performance of the programme tipped to enhance credit access by micro, small, and medium enterprises.
The scheme, which seeks to share default risks between banks and the State and thereby increase the pool of funds available for lending, registered a marginal growth of Sh100 million in the first eight months of 2024 to Sh6.3billion, up from Sh6.2billion at the end of December 2023.
The Treasury had provided Sh3 billion as seed capital for the scheme three years ago with the expectation of driving at least Sh12 billion in new loan disbursements to micro small and medium enterprises (MSMEs).
Over 4,000 MSMEs have nevertheless benefited from the scheme’s funding which is capped at Sh5 million per borrower.
“The number of MSMEs facilitated with credit guarantee increased to 4,121 MSMEs as of August, distributed across 46 counties and 12 sectors of the economy compared to 2,190 MSMEs as of September 2022 demonstrating a higher appetite by banks to lend to viable MSMEs,” notes disclosures from the government delivery unit.
About 20 percent of the credit under the programme has been disbursed to enterprises owned by women, youth, and persons with disability.
Businesses from Mandera County are however yet to benefit from the guarantee due to the poor distribution of financial intermediaries in the country.
The low disbursements from the programme have aligned with the broad contraction of the banking sector loan book this year as high interest rates turn off willing borrowers while banks have closed the tap on new credit from the escalation of non-performing loans.
The banking sector loan book for instance contracted by Sh154 billion in the first eight months of 2024 to Sh4.045 trillion from Sh4.199 trillion at the end of December 2023.
This has seen the growth of private sector credit collapse to a low of 1.3 percent as of August, a record that matches to the deterioration of lending during the stay of interest rate caps.
The poor performance of the guarantee fund amplifies challenges identified previously including the informality of small businesses and the low awareness of the product at the marketplace.
MSMEs qualifying for funding under the programme must for instance show proof of registration.
Other challenges sighted include SMEs failing to meet the criteria of the definition under the MSME Act and the misclassification of some businesses.
The credit guarantee scheme has been delivered through a risk-sharing agreement between the government and seven participant banks including Absa, Co-operative Bank of Kenya, Credit Bank, KCB, NCBA, and Stanbic.
The credit guarantee scheme undertakes to absorb a loss of up to 25 percent of the principal in case a borrower defaults.
Loans under the programme have a term of three years and up to a five-month grace period, with a discounted interest rate based on the businesses’ risk profile.
