2bn Guarantee Fund by Government for SME Bank Loans

The Kenyan government plans to form a Sh2 billion fund whose aim is to guarantee small businesses that seek banks loans but do not have collateral.

In a statement, Africa Guarantee Fund (AGF) Deputy Chief Executive Jules Ngankam said that the government was in talks with the Pan-African institution to set-up the fund’s structure. It is expected to be ready by the conclusion of this year.

“Government of Kenya approached us to set up the fund which will have a capacity of $20 million (Sh2 billion) initially but we plan to grow it in the coming years by talking to donors, European Union, France, and Denmark,” he said.

The government’s role will mirror that of a Sacco, where member’s contributions are used to guarantee each other, making it possible for loans of up to three times the deposits.

In his 2018 budget speech, the Treasury Cabinet Secretary Henry Rotich said that the government would establish a deep-pocketed fund, a development bank specifically for SMEs and also offer credit guarantees.

In case of default, this would ensure third-party credit risk mitigation to lenders through the absorption of a portion of the lender’s losses on the loans lent.

The AGF Deputy Chief Executive was speaking during the signing of a Sh515 million loan with NIC Bank that will help reduce the risk of lending to SMEs.

AGF is the pioneer institution in Africa that is entirely dedicated to the mobilization of private resources for SME development.

In the past six years, it has led the market in Africa in the issuance of guarantee products to over 100 financial institutions that have in turn made $1.6 billion (Sh160 billion) available for the financing of SMEs in 39 African countries.

Kenya currently makes up 20 percent of its portfolio.