Review: SMEs lose big on higher credit

Limited credit flow to small businesses has limited their growth. [Courtesy]
The Central Bank of Kenya (CBK) has dropped a demand that would have forced banks to increase loans to small businesses by 20 per cent.

The regulator seems to have bowed to pressure to drop the condition in a circular published yesterday, meaning the banks will now have a free hand in determining amounts lent to Small and Medium-sized Enterprises (SMEs).

This is a departure from the clear targets that had been contained in the strongly worded draft Kenya Banking Sector Charter.

“Each institution to evaluate its existing processes to promote lending to MSMEs (Micro, Small and Medium Enterprises), as well as document the initiatives that the institution is undertaking to promote access to finance for MSMEs. December 2018 will be used as a baseline,” said CBK in the charter posted on its website.

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Curiously, the regulator published the charter on the same day CBK Governor Dr Patrick Njoroge launched an SME lending mobile application product called Stawi which will be run by five banks.

The soon-to-be-merged Commercial Bank of Africa and NIC Bank, KCB Group, Co-operative Bank and Diamond Trust Bank will give loans of between Sh30,000 and Sh250,0000 at an interest rate of nine per cent. The pilot will involve 3,500 traders in two weeks before expanding to 10,000 traders.

Banks have been fighting the regulator over the clause that would have forced them to increase lending to SMEs which they have given a wide berth, citing their risks on their balance sheets.

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Preference for government lending as opposed to the private sector has choked SMEs, denying them of crucial cash flows and expansion capital.

The Economic Survey showed that credit to the private sector recorded a 2.4 per cent growth as of December last year (Sh2.42 trillion) compared to a growth of 3.9 per cent as of December 2017 (Sh2.36 trillion).

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Central Bank of KenyaSMEsPatrick NjorogeStawi