Sh3.8b Fund to propel MSE sector

March 14, 2011

, NAIROBI, Kenya, Mar 14 – The Ministry of Finance has rolled out the Financial Inclusion Fund for the informal sector that is expected to ease access to credit for the micro and small enterprises sector.

The Fund, which was announced during the 2010/2011 Budget, will see the Treasury make available Sh750 million for borrowing by players in the MSE sector.

Speaking during the launch, Finance Minister Uhuru Kenyatta said the ministry had contracted three banks that are expected to match each shilling made available by the government by five shillings, bringing the total kitty to Sh3.8 billion for the sector.

"Our overall objective is to ensure that our MSE sector becomes efficient, innovative and has a competitive project range and transform it into a more formal sector," Mr Kenyatta said.

The minister pointed out that the major challenge for the sector has been the high cost of borrowing, adding the Fund would offer competitive interest rates that will bolster growth of the sector.

The Treasury is also in the process of developing other financial services focusing on the low income and informal sectors.

"The government recognises these constraints and is indeed implementing a program of creating and expanding access to formal markets so as to graduate small enterprise from the informal sector," Mr Kenyatta said.

SMEs have a high a risk profile, which makes it difficult for them to access traditional sources of credit and finance.

According to the government\’s Economic Survey 2010, the SME sector employed 8.3 million people in 2009 and creates 590,000 new jobs annually though its contribution to Gross Domestic Product has stagnated at 18 percent.

The Ministry has contracted Equity Bank, K-Rep Bank and the Co-operative Bank, which will each receive Sh250 million, to roll out the first phase of the program.

The banks are yet to establish at what rate they will be lending the Funds.  K-Rep Bank Managing Director Albert Ruturi said they would not be applying the same interest rates as the normal commercial lending rates.

The government views the SME sector as one of the key drivers of economic growth and has been putting in place measures to grow the sector.

The sector is also set to benefit from the Micro, Small and Medium Enterprises Bill that is to be presented before Cabinet later this month.

The Nairobi Stock Exchange is also working on creating a new segment to allow players in the sector to allow them list on at the bourse and seek alternative funding to support growth.

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