NAIROBI, Kenya, May 17- Equity bank on Monday signed a Sh4 billion agreement with the China Development Bank to provide loans for Small and Medium Enterprises (SME).
The loan facility is part of a $5 billion fund set up by the Chinese bank for development of SMEs in Africa.
Equity Bank Chief Executive Officer and Managing Director James Mwangi said the move was geared towards enabling those in the SME sector to play a bigger role in growing the economy.
“This facility will allow us grant our SME customers long term facilities to spur economic activities across the country,” Mr Mwangi said, adding the facility will be biased towards Agri- processing and export related activities.
Mr Mwangi said the bank had identified the need to offer more long-term borrowing facilities for its clients.
In so doing, he said the bank had reduced its base lending rate from 15 percent to 12 percent.
SME borrowers will however be able to access loans below the base lending rate, with interest rates set at between seven and nine percent for periods of three to seven years.
“The SME sector has faced the challenge of high costs of credit, bank charges and fees limiting their potential contribution to the country’s economy,” he said.
Potential borrowers will be able to get between Sh3 million to Sh30 million, but their interest rate will be determined on their capital base and ability to repay the loan.
The move is also seen as a strategy by the bank to retain its SME customers once they graduate to corporate clients.
Mr Mwangi said over the last five years many of their micro enterprise clients have grown to a corporate level and changed banks thereafter.
“We have been very strong at the bottom of the pyramid. It is for this reason that Equity has decided it is not going to surrender the SMEs to the mainstream corporate banks but retain them by creating a corporate segment and make ourselves very relative and suitable,” Dr Mwangi said.
The bank also aims to bring affordability to SMEs and position them strategically once the East African Common Market comes into force in July.
“They will be able to expand their capacity and compete favorably in a larger market,” he said.