Commercial banks inject billions of shillings in high-return SMEs

Higher financial returns in the Small and Medium Enterprise (SME) market segment has seen banks start injecting billions of shilling in the sector, a new report has said.

The report by the Central Bank and other development partners says the lack of harmonised definition of what constitutes an SME is however making it difficult to collect actual growth data.

“The high profitability of the SME segment, combined with growing competition in the corporate segment and the consequent reduction in profit margins, encouraged banks to grow their SME portfolio,” a report FinAccess Business, SupplyBank Financing of SMEs in Kenya says in part.

The SME portfolio is increasingly being driven by domestic banks, while the share of loans to SMEs by foreign banks decreased from 40 per cent in 2009 to 27 per cent in 2013.

Banks were given a list of potential drivers and obstacles and were asked to rank them as ‘not significant’, ‘significant’ or ‘very significant’.

The report collaborates what has been happening in recent months as banks turn a full circle and start going after the sector. Barclays Bank is the latest bank to go after the sector after it announced in August a Sh30 billion funding war chest to the sector. The bank in the past only focused on retail and corporate banking.

KCB has set aside Sh40 billion ($400 million) in additional funds dedicated to investors in the sector. On its part, Equity Bank signed loan deals amounting to Sh53.49 billion ($525 million) for onward lending to entrepreneurs and innovators in the sector, a decision reached after a two-day Global Entrepreneurship summit.

By December 2013, the report estimates that SME lending portfolio was Sh332 billion, representing 23.4 per cent of the banks’ total loan portfolio.

“The SME portfolio grew fast in absolute values but also as percentages of total lending. In 2009 and 2011, the total SME portfolio was estimated to be Sh133 billion and Sh225 billion, respectively, and SME lending represented 19.5 per cent and 20.9 per cent of total lending, the report indicates.