Tier one lender Co-operative Bank of Kenya has pledged to double down on lending to small- and medium-sized businesses.
Group Chief Executive Gideon Muriuki said the lender would boost annual lending to the SMEs, bucking projections of a highly anticipated clampdown on credit for the sector, which is perceived risky.
This comes at a time when private sector credit growth is softening amidst the rising cost of loans after the Central Bank of Kenya (CBK) raised benchmark lending rates to battle sticky demand-side inflationary pressures.
The latest CBK quarterly survey, for instance, reported weaker appetite for loans from firms, a scenario that closely followed previous economic slowdowns.
But Mr Muriuki said despite a tightening in the local credit market, Co-op Bank, will prioritise the country's vibrant small business sector.
Kenya’s third-largest lender by asset value earlier set aside a $100 million (Sh14.6 billion) war chest for affordable loans to Kenyan small businesses following a loan deal with German Investment Corporation (DEG) for onward lending to the SMEs.
The SMEs constitute about 98 per cent of businesses in Kenya and have an annual job creation of 30 per cent of all new jobs, according to conservative estimates.
Muriuki spoke after the lender was feted with a World Bank-backed award for its role in financing small and medium-sized enterprises in the country.
Organised by the International Finance Corporation, a member of the World Bank Group, the Global SME Finance Awards 2023 recognises financial institutions and fintech companies for their "outstanding achievements in delivering exceptional products and services to their SME clients."
The SME Finance Forum is backed by the G20’s Global Partnership for Financial Inclusion (GPFI).
“In collaboration with IFC and other partners, we have taken time to listen, study and build a most competitive value proposition for SMEs intended to support them realise the goals they have set for themselves, and we are very encouraged by the successful outcomes we continue to see in the marketplace," said Muriuki. "This award is for Kenyan SMEs too.”
The World Bank-backed SME Finance Forum works to expand access to finance for small and medium businesses.
The Forum operates a global membership network that brings together financial institutions, technology companies, and development finance institutions to share knowledge, spur innovation, and promote the growth of SMEs.
"This competition makes me very positive that we are on the right track to greatly narrow the SME finance gap," said SME Finance Forum Chief Executive Matthew Gamser.
CBK has in recent months issued the highest key lending rate hike in years, raising the benchmark rate to 10.50 per cent.
The tightening of liquidity is feared to have a negative effect on access to credit for individuals and companies, with borrowers set to feel the financial pain of the increased cost of loans.
This could translate into banks tightening their lending standards.
The sharp rise in interest rates already threatens to choke economic growth as it has lifted borrowing costs and encouraged cutting costs or saving over spending, investing, and hiring.
If lending dries up, that could weigh down on the value of stocks, real estate and other assets besides crimping overall demand - a recipe for a painful recession.
At the same time, higher rates have increased borrowing costs.