NAIROBI, Kenya, Feb 1 – Local Small and Medium Enterprises (SMEs) are set to access a €13.5 million (Sh1.48 billion) long-term funding from the European Investment Bank (EIB) through the Consolidated Bank and ABC Bank.
EIB Regional Representative Kurt Simonsen said the Private Enterprise Finance (PEF) facility, which is the second scheme of its kind, is to improve the production capacity of the private sector in Kenya.
“The facility will be supported by a technical assistance program to help companies that apply for loans to receive training, improve their management skills and enable them to prepare business plans,” he said.
The new financing will provide SME’s long-term loans with a tenor ranging between four and 10 years and be available in dollars, euros alongside shillings with the option of either fixed or floating rates.
The sectors allowed by the EIB in the PEF II facility include the agro industry, fisheries, food processing, manufacturing, transport, construction, private education and healthcare as well as services related to the respective sectors.
ABC Group MD Shamaz Savani said interest rates will be determined by EIB pegged on several factors including market forces, risk premiums and the currency in which the loan is advanced to the borrower.
“The euro and the dollar will be based on the London Interbank Offer Rate (LIBOR). The shilling is based on LIBOR then they do a swap of the shillings to the dollar or vice versa – there’s a swap premium so the shilling pricing becomes slightly higher, but still below market premium,” he explained.
The facility will enable the banks to structure better products for SMEs offering a mix of trade finance products, cash management products along with the long-term financing while reducing their credit risk.
Consolidated Bank said it would be ready to advance the loans at a rate of 17 percent depending on its customers’ needs.
Long-term loans targeted at SMEs have been a rarity in the Kenyan market despite the fact that of 503,000 jobs created in 2010, 80.6 percent were in the SME segment, according to the Kenya Economic Survey 2011.
Since 1991 EIB has pumped €155 million (Sh16.9 billion) in funding to small Kenyan business.
The EIB intends to continue its engagement in the financial sector in Kenya rolling out further credit lines including microfinance with other local and regional banks later this year.
Last year a similar facility to the PEF II was launched for €40 million (Sh4.38 Billion) in Uganda involving six banks that has been credited for creating 1,700 new jobs across the tourism, manufacturing, agribusiness, construction and education sectors.