Photograph — Kenyan Wallstreet

In order to help businesses to better access finance, NIC Bank Kenya Plc has signed a KSh515,000,000 ($5 million) Loan Portfolio Guarantee with the African Guarantee Fund (AGF) specifically for small and medium-sized enterprises (SMEs) in Kenya. The partnership is intended to ease access to bank loans for SMEs without collateral in Kenya. It also aims to unlock financing intended to facilitate the promotion, growth and development of SMEs.

From reducing poverty and unemployment to boosting the country’s economy, SMEs in Kenya represent a functional contributing factor to economic growth. In Kenya, the SMEs employ approximately 14.9 million people and contribute an estimated 28 percent of Kenya’s GDP.

Despite the role SMEs play in Kenya’s economy, the sector lacks the basic support it requires to unlock its full potential. Till date, access to bank loans has been a major setback to many business owners who aspire to scale up their businesses. This is largely due to the fact that financial institutions place stringent loan requirements such as collateral and interest rates for business owners that seek to acquire bank loans.

On their part, financial institutions complicate the loan process because they are mostly concerned with the risk of loan defaulters. Consequently, given the stiff loan procedure, only a few numbers of borrowers are able to meet the loan requirements while a large number, especially growing businesses, are often rejected.

As a result of these shortcomings, a majority of SMEs in Kenya are unable to hit three years of operation because of about 46 percent collapse within their first year. According to the Kenya National Bureau, approximately 400, 000 small enterprises die within their 2nd anniversary.

Understanding the situation, it has become clearer that the poor access to finance for businesses requires sustained support from authorities. This is why the AGF is collaborating with NIC Bank to enable SME customers seeking Trade Financing to overcome the financing barrier.

The loan portfolio guarantees that the facility will see AGF provide some sort of insurance to lenders by sharing the risks envisioned by the bank in situations where the target SME clients are unable to meet collateral threshold requirements. AGF intends to provide partial credit guarantee and capacity development to lenders to stimulate financing of SMEs thereby unlocking their potential to deliver exclusive growth in the continent.

Speaking on the partnership, Jules Ngankam, AGF Group CEO said that with this partnership, “we are going to increase access to finance for SMEs. This will mean more job creation and revenue generation which directly aligns with AGF’s mission of catalyzing economic growth and poverty reduction in Africa. AGF is proud to have partnered with a bank that has a vision for SMEs and believes in their potential to spur the growth of this country.”

NIC Bank’s Corporate Director Ellie Chiuri also reaffirmed the bank’s position in striving to be the leader in offering financing solutions to SMEs. He reiterated that the Bank supports its Trade Finance customers with innovative products and services and specialist expertise in sectors such as Agribusiness, Manufacturing, Trading, Health, Transport and Communication, Energy, Government and Education.

“We customize our products and services to meet our clients’ specific account management, payments, collections and liquidity management requirements,” Ellie said.

The deal between NIC Bank and AGF will address the barriers that currently discourage lenders from giving out loans to small business owners. As a result, SMEs without collateral, earlier perceived to be risky borrowers will now be able to access bank loans. This will encourage SMEs to expand their operations, which will lead to more job creation and generally spur economic growth in Kenya.

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