Bank of Africa takes new loan facility to the informal sector

By MACHARIA  KAMAU

Bank of Africa has launched a new credit facility targeting the informal sector popularly known as the Jua Kali.

Local commercial banks have in the past shied away from the informal sector in favour of the corporate sector where lending risks are considered low.

The bank said the new product – Informal Sector Operations (INSOP) – is tailored for micro, small and medium-sized enterprises. It will enable entrepreneurs’ access a credit facility of up to Sh2 million.

Ms Eunice Waheho, Informal Retail Banking Manager at Bank of Africa-Kenya said the product would be piloted in Kitengela in Kajiado County before being rolled out to the rest of the bank’s network of 27 branches.

She said the institution has been mainly dealing with corporates but is now going deeper because informal businesses play a vital role in deepening financial inclusion.

“We want to help the entrepreneurs grow their businesses to the next level,” she stated during the product launch.

adequate stock

Waheho added that the product is targeted at informal businesses that deal with the final consumer and would help in ensuring that they have adequate stock by providing working capital.

The new product has been facilitated by a Sh2 billion ($25m) loan agreement that Bank Africa has with Dutch Development Bank, which is geared towards supporting SMEs, especially those involved in export business within the region.

The INSOP product is in addition to the Chai Loan that the bank launched earlier this month and provides short term financing to both small-scale and large-scale tea farmers, to support farming operations critical to increased yields and revenues.

Access to finance by SMEs has been an issue of great concern over the years.

The International Finance Corporation (IFC) estimates that the gap in SME financing in emerging markets stands at between $900 billion and $1.1 trillion.

In fact, only one in five enterprises in Africa have access to a credit line from a financial institution, according to figures from the African Development Bank (AfDB).

However, the tide seems to be turning with the keen interest that these enterprises are getting from financial institutions.

Apart from banks, several private equity funds that are focused in the East African region have been launched to cater for the financial needs of these enterprises.

business chain

In Kenya, the government has identified strengthening and encouraging the development of the SME sector as a key objective.

In his budget speech for the 2013/14 financial year, National Treasury Cabinet Secretary Henry Rotich stated that plans are underway to enact the Biashara Kenya Bill currently under formulation, to provide a one-stop shop solution across the entire SME business chain.

The business solutions would include skill, business development and  product standardisation.