Kenyan SMEs picked for Sh9b UK-backed credit guarantee deal

UK Foreign Secretary James Cleverly arrives for a Cabinet meeting in London on October 26, 2022. [AP Photo]

Small and medium-sized businesses (SMEs) are set to benefit from a $75 million (Sh9.1 billion) fund set to guarantee their borrowings from local commercial banks.

This is after the Africa Guarantee Fund (AGF) and the UK government’s development finance institution British International Investment (BII) inked a credit guarantee deal.

Through the facility, AGF and the UK agency will provide credit guarantees to yet-to-be-picked financial institutions for up to 75 per cent of the risk on SME loans, thereby reducing collateral requirements for these enterprises. Under the deal, up to 15 per cent of the facility, or Sh1.3 billion, will go towards loans to eligible SMEs.

“British International Investment is already a force for good in Kenya, supporting jobs and livelihoods in Africa. This investment shows that when we go together, we can go far,” said UK Foreign Secretary James Cleverly in a statement. As a result, the eight-year partnership is expected to facilitate up to $150 million (Sh18.1 billion) in loans to 17,300 SMEs across Kenya and select other African countries through partner financial institutions. 

“Our partnership with British International Investment marks our first engagement with a UK development finance institution and is the beginning of a journey that will positively impact African SMEs,” said AGF Deputy Group Chief Executive and Group Chief Risk Officer Constant N’zi.

“Through this re-guarantee, our capacity to support lending institutions has been increased and we are certain of increased economic growth across the 40 African countries wherein our guarantee products are utilised.”The firms said the partnership will also encourage lending to women-owned or led SMEs as well as those that are climate-focused. The financing partners noted SMEs in Kenya continue to face significant challenges in accessing credit.

“Financial institutions are often constrained by regulatory requirements, limited appetite for a segment perceived to be higher risk, a lack of adequate collateral available from SMEs, knowledge gaps by the lenders and skill gaps demonstrated by SME borrowers,” they said.