Equity Bank secures Sh4b loan for SMEs

BY JACKSON OKOTH

Equity Bank Group has secured a Sh4 billion medium-term loan facility for the small and medium sized enterprises (SME) sector.

This raises the level of competition as banks outdo each other to attract borrowers in this segment.

"The loan facility will be available to SME clients at interest rates of between seven and nine per cent, for periods of three to seven years," said Dr James Mwangi, CEO Equity Bank.

He made these remarks Monday after the bank signed a $5 billion SME support facility agreement with China Development Bank.

The facility will allow Equity Bank to provide long-term funds of up to 12 years to SMEs.

Export business

"We aim to stimulate those SMEs engaged in the export business, with a strong bias in agro-processing," said Mwangi.

Equity Bank SME clients will be able to access credit of between Sh2 million and Sh30 million. In the past, SMEs have had stunted growth owing to the short-term lending nature of banks, including overdrafts. SMEs are expected to take advantage of long term funds to purchase new machinery, construct factories and new plants or expand capacity.

"This is a huge scaling up facility that will assist SMEs graduate into big corporate companies," said Mwangi.

The bank will be looking at leverage on capital, structure of security and collateral offered as well as cash-flows, as some of the criteria for lending.

"We anticipate that SMEs will take advantage of this facility to increase capacity, and become major suppliers to the East African regional market," said Mwangi.

While Equity Bank has been a dominant player at the low-end of the pyramid, the shifting of its customers to SMEs has prompted a rethink in the bank’s strategy.

"We decided that we cannot leave our clients to other corporate players but set up a facility for them," he said. Equity Bank’s huge SME loan facility comes when the bank has also cut its base lending rates, from 15 per cent to 12 per cent.

"In a low-inflation environment and a fall in the inter-bank and bond market, banks are finding alternative instruments unattractive," he said.

Commercial Banks are expected to lower their base lending rates further in the coming days as use of credit reference bureaus come alive.

" High default rates has in the past been a major cost for banks," said Mwangi.