Boom in quick loans expected as SME-backed Credit Guarantee Fund is approved

By Steve Umidha

Kenya’s micro lenders are predicting a rise in demand for quick loans on improving business conditions being backed by Cabinet’s approval of Sh10Billion Credit Guarantee Scheme on Friday, which targets micro, small and medium-sized enterprises (MSMEs).

In an effort to advance access to loans for struggling small business operators reeling from the effects of COVID-19, the credit guarantee kitty to be operationalized by mid next month, will have an initial seed capital of Sh10 billion to be capitalized in two tranches of Sh5 billion in the financial year 2020/21 and Financial Year 2021/22.

As a result, micro lender Jijenge Credit expects a significant jump in loan requests from MSMEs who make up most of its customers with gradual re-opening of the economy and increased liquidity of the banking system also expected to boost businesses.

Jijenge’s CEO Peter Macharia in an interview said loans disbursements had shown steady rise since the pronouncement in the flattening of the COVID-19 Curve three weeks ago by President Uhuru Kenyatta.

“The number of calls and inquiries have really gone up since July and August is now opening up. We are very optimistic as the curve now begins to flatten, it is a reprieve for businesses such as ours,” Macharia, said adding that the firm had lost more than 50 per cent of its business volumes compared to the same period last year (March to July).

Cabinet also approved the Kenya Micro and Small Enterprises Policy, whose aim is to provide an integrated business environment for the growth and development of stable and vibrant MSEs in Kenya.

“The Policy recognizes the vital role played by MSEs in the economy, particularly with regard to wealth and employment creation,” reads in part the Executive Order signed by the President.

Macharia’s comments resonate with those by the Market Perceptions Survey undertaken in July that sampled local banks who expect a pick-up in demand for credit beyond August due to the opening up of the economy as businesses look up.

Faced with lockdowns across major counties and restrictions on movement in certain towns many businesses had been staring at a decline in collections and increased demand for working capital from borrowers, most of whom continue to struggle to qualify for loans.

“Instead of doing 50 percent, we are now doing 30 percent, meaning that if initially we lent to 50 percent value of a car, we’ve reduced that to a lower percentage,” he said, adding that the company like many others will put on hold all expansions plans owing to that uncertainty brought by the pandemic.

The struggle has been caused by creditors requiring higher credit scores and bigger down payments in response to higher rates of unemployment and economic uncertainty amid the pandemic.

Loan repayment periods that were extended by 6 months from April, for example are expected to expire this month and upon renewal or further extension –if endorsed by the CBK, will see the value of loan restructured on COVID-19 surpass the Sh1 trillion mark from Sh844.4 billion as of June.

“Banks have revised their optimism upwards largely due to the reopening of the economy, in addition to the fiscal stimulus and monetary policy measures put in place, soundness and stability of the banking system,” reads in part a Central Bank of Kenya (CBK)’s Monetary Policy Committee (MPC) survey report which predicts that the growth will be significant during August and the last quarter of 2020 as businesses look for credit sources to boost operations – although this will happen at a slower pace.

Banks restructured household loans amounting to Sh240billion or an equivalent of 30 percent of all loans in the banking sector while restructured loans to other sectors hit Sh604.4 billion during that period (April-June).

Value of bad loans or defaulted bank loans those unpaid for more than 90 days – heaped by Sh11.1 billion to stand at Sh366.8 billion in April – recording a 13-year high, and reflecting the cash flow burden on workers and businesses brought about by coronavirus disease hardships.