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Equity Group has received Sh8.2 billion ($75 million) as a credit guarantee fund from pan-African financial institution, African Guarantee Fund in order to increase its lending to small businesses.
This is set to see the risk of default by a borrower shared between the two institutions. The fund will help cover part of the loan in case of failure in repayment by the borrower.
The fund is expected to help Equity Group reduce its risk of lending in the country and subsidiaries in Uganda, Rwanda and DRC against customer deposits worth Sh691.03 billion recorded in the nine-month period to September last year. It comes at a time when the bank recorded Sh105.8 billion worth of restructured loans and Sh1.8 billion as foregone fee revenue from waived charges due to a pandemic that saw massive layoffs, pay cuts and companies’ declined revenues, hurting borrowers’ ability to pay.
“We feel the risk of lending to the MSMEs is heightened and as a result we needed to prolong the period of lending which needed long-term funding,” Equity Group CEO James Mwangi said.
The fund brings the total credit flows aimed at supporting MSMEs to Sh52.5 billion.
The fund will help the bank reduce its loan provisions and conserve its balance sheets and boosts its profits. Equity is expecting to receive 125 million euros (Sh16.5 billion) loan facility signed two weeks ago with the European Investment Bank.
The bank also received a $100 million (Sh11 billion) credit facility from leading European Development Banks – DEG, FMO and CDC-UK.
In September, Equity Group signed a $50 million (Sh5.5 billion) loan facility with International Finance Corporation, and $100 million (Sh11 billion) from France’s development finance institution, Proparco in October.