NAIROBI, Kenya, May 29 – The National Economic and Social Council (NESC) is pushing legislation for Credit Guarantee Schemes (CGS) in a bid to increase access to finance for Small and Medium Enterprises (SMEs).
NESC Secretary Julius Muia says that there is a large financing gap for SMEs in the country making businesses suffer from undersupply of bank credit, inhibiting their growth.
“The draft bill is with the National Treasury. The government is looking to fast track it, “he said.
Muia says the fund created will reduce costs and risks of lending and increase money for lending in financial institutions.
“Part of high interest charged by banks on SMEs is because of higher risk of lending and that higher risk is reduced when there is a guarantee behind that lending,” he said.
He said SMEs would increase sales by 70 percent while employees would go up by 52 percent if credit guarantees are offered to financial institutions in the country.
He said guarantee funds should also be created at both national and county level to provide guarantee for credit through qualified financial institutions to SMEs in priority sectors such as agriculture, construction and exports.
Muia was speaking on Thursday at the launch of Credit Guarantee Schemes in Kenya report.
The report indicates that over nine million informal businesses in the country have tended to seek finance from micro finance institutions for their expansion programs and working capital needs.
According to the report, SMEs in Kenya operate in an unsophisticated business environment. Over 67 percent of sales are made on a cash basis while own funds are the most popular source of funds when payments are delayed followed by bank loans friends, family support, overdraft and shylocks respectively.
The report also recommends the government to develop and implement suitable guidelines that provide for prompt payments for supplies made and services rendered to the public sector,
Arrangements should also be made to encourage and enable exporters to use cheaper means of receiving payments such as open account and cash against documents.
Main providers of guarantees in Kenya are multilateral agencies and development partners.
Utilization of CGSs are low with the targeted beneficiaries utilizing only 6 percent of the guarantees availed by the government and multilateral organizations and 31 percent of those from development partners.
Among the credit guarantee schemes in Kenya include Youth Enterprise development Fund, Women Enterprise Fund, Programme for Rural Outreach for Financial Innovations and Technology (PROFIT) and Enhancing Agriculture Productivity project (EAPP) among others.