Small and Medium Enterprises will benefit from a KeSh 200 billion kitty from the Equity Bank that was created recently to cushion them against huge losses that they are likely to suffer as the ravage of Covid-19 continue to take a toll on businesses in the country.
While unveiling the kitty during the weekend, the lender said borrowers who qualify for the credit line must be appraised and must also be members of the Kenya National Chamber of Commerce and Industry (KNCCI).
The loans, the lender announced, will be repaid for a period of up to 3 years. This kitty adds to the contributions by the private sector in fighting the pandemic, which has already cost at least a million jobs and is projected to cost the economy at least KeSh 2 trillion, according to the banker.
KNCCI said that availing credit under concessionary terms, including easier repayment plans such as extended grace periods could reverse the impact of the coronavirus and rescue the economy from a potential recession.
KNCCI has in the recent past shifted to a top gear in promoting SMEs. Before Kenya announced its first case of Covid-19, the chamber in conjunction with the Nation Media Group (NMG) organised an SME Expo that created a platform for them to showcase their products.
Although the sector accounts for more than 80 percent of all businesses in the country, it faces immense challenges.
Lack of finance and credit, especially from financial institutions such as commercial banks, has been one of the sector’s biggest headache.This is because of the lending conditions given to SME such as collateral for the loan, which they lack, leading to them being profiled as high-risk borrowers.
They, therefore, result in unreliable sources of financing and expensive loans that deny them the opportunity to embrace appropriate technology.
President Uhuru Kenyatta’s government has also been very keen to work closely and promote SME.
Last year, the KNCCI signed an MoU with the Kenya Bankers Association (KBA) to help the SME’s access credit and the umbrella organization of business community entered into a partnership with the Office of the President (OP) when the Special Advisor to the President Ms. Anne Mutahi paid A courtesy call to KNCCI.
“We have discussed how to assist startups and get a framework and an ecosystem around helping the SME’s. This is a critical area we talked about,” Mutahi said.
Last year, President Kenyatta announced the establishment of a special fund for SMEs in what was expected to ease a cash crunch that had hampered small businesses for three years before the scrapping of the interest rate cap last year.
“Five commercial banks have set aside Sh10 billion to be lent to MSMEs (Micro, Small and Medium Enterprises) at an interest rate of nine percent per annum, in loan amounts ranging between Sh30,000 and KeSh250,000,” said the President.
“This was a most welcoming relief for our traders who were already facing soaring default penalties from their lenders and we thank the president for the timely move,” the President of KNCCI Mr. Richard Ngatia said.
According to Phyllis Wakiaga, the Chief Executive Officer of Kenya Association of Manufacturers, 50% of all new jobs are estimated to come from medium and large companies, despite them constituting only 20% of all firms in the manufacturing and services sectors. This, she said, is according to a World Bank report on High Growth Firms released recently.
“Despite the huge role that SMEs play in driving the growth of our economy, it is estimated that their contribution to production is minimal, and many of them specialize in low-value addition,” she said.
Added she; “Essentially, many small businesses are part of a huge informal economy which may seem to offer relief for their short-term challenges but in the long run, minimizes their potential for growth, access to wider resources and markets – and ultimately limits their socio-economic impact.”
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