NAIROBI, Kenya Apr 28 – Equity Bank has established a Sh30 billion fund for lending to the Micro and Small Enterprise (MSE) sector.
The fund is in line with the Ministry of Finance\’s MSE Fund, which seeks to make credit available to the small and mid-sized entrepreneurs.
With the establishment of the fund, Equity bank will match each shilling the government sets aside for the MSE fund by Sh9, up from the Sh5 requirement by the Treasury.
Equity Bank Chief Executive Officer James Mwangi said on Thursday that the major challenge for the sector has been the high cost of borrowing, adding the fund will bolster growth of the sector.
He said MSEs have a high a risk profile, which makes it difficult for them to access traditional sources of credit and finance.
"We need to look at the challenges and transform it to increase the wealth generated by this sector," he said.
While large firms have been grappling with emerging challenges in the business environment in recent months, small and medium-sized companies have sustained growth through aggressive sales and roll-out of new products.
The CEO, who is also the Chairman of the Vision 2030 Delivery Board, said there was need to transform the economy by bridging the gap between the formal and informal sector by growing small businesses into cooperates.
"We need to support the informal sector to grow to 80 percent of the big businesses we have in Kenya from the current two percent," he said.
Central Bank Governor Prof Njuguna Ndung\’u said that in addition to making credit available to small and medium-sized companies, financial institutions would have to recommend interest rates that were conducive for growing businesses.
"Banks need to offer interest rates that are commensurate with the economic conditions that SMEs operate under. While big companies are charged interest rates from between 14-16 percent, SME interest rates should not be more than eight percent," Prof Ndung\’u said.
They were speaking during the launch the bank\’s Financial Literacy Programme, aimed at widening financial access and deepening financial inclusion in the country.
Through a multi-faceted partnership approach, the bank will offer free financial education, affordable loans and roll out an aggressive agency banking model to complement its extensive branch network.
Mr Mwangi said the bank had partnered with the MasterCard Foundation to roll out the Sh915 million training programme that will provide education to over 620,000 youth and women over the next three years.
"Training these two key demographic groups in financial literacy is aimed providing them with financial advisory services, supportive networks and knowledge that will facilitate their path to accessing finance to start and grow their businesses," he said.
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