How State sweetened deal to get SME support

By John Njiraini

The Ministry of Finance was forced to formulate a sweetheart deal to encourage commercial banks collaborate in the implementation of the Sh3.8 billion SME Fund. The Small and Medium Enterprise (SME) Fund targets a segment of the population that most banks have largely ignored.

A report on the establishment of the SME Fund reveals that Treasury was forced to devise structures and incentives agreeable to commercial banks for them to act as the intermediaries for the fund, which aims to avail soft loans to mama mbogas, hawkers and kiosk owners, among others. The incentives forced the Treasury to avail the loans with long repayment terms of between four to six years, a grace period of six to 12 months, low interest rates at four per cent, and provide the qualifying institutions with capacity building grants to improve on their capacity to target the lower level clientele.

More risk

"In order to create and incentive for the banks/MFIs (micro finance institutions) to take more risk and reach lower than their usual clients, the loan will be given for a longer duration to ensure that they have stable liquidity to give longer term loans," states the MSE Financing report in part.