The credit rating system was formulated by Metropol Corporation to establish credit quality and the probability of default on a financial obligation.
Metropol Corporation Managing Director Sam Omukoko said the rating method will be two-fold ranking micro and small enterprises on information available on the credit reference bureau platform, while larger businesses will undergo a much more rigorous process.
“For the larger businesses which want to raise finance from other institutions like the stock market or long term lending institutions, the process will require audited financial statements, business strategy, business plans and operations of the business in the sector it operates,” he said.
SMEs will be required to have been in business for at least two years to build a substantial borrowing history to receive a credit rating.
Omukoko said the credit rating system will, among other benefits, allow more SMEs to apply for financing in a banking sector that regards small businesses as high risk borrowers.
“The turnaround time for the bank to process an SME application will be faster. Access to funding will be easier for SMEs that are rated. Banks will be able to tailor products to suit the circumstances of the SME,” he said.
Banks have often complained that the high mortality rates of SMEs and high cost of lending have deterred them from lending to the sector.
It is estimated that SMEs in Kenya account for about 18 percent of the total GDP and over 80 percent of the jobs in the entire Kenyan economy.
Other partners involved in facilitating the regional rating system, include the Ministry of Labour, European Union and the International Finance Corporation (IFC).
The credit system has also defined what an SME is, as countries in the region have differing views.
A company with one to five employees and a capital investment of $50,000 is considered micro, while a small enterprise will comprise six to 50 employees and have a capital investment between $51,001 and $1 million.
Medium enterprises on the other hand will constitute between 51 and 100 employees with a capital investment of $1,000,001 to $5 million.
In addition the credit quality will be symbolised by a combination of the alphabet while the size will be symbolized by a numerical figure; for example AA 1 will represent the highest possible credit score an SME can receive.