Bank targets small businesses with credit offer

By John Oyuke

Consolidated Bank of Kenya is augmenting its market presence with new products targeting small and medium scale enterprises (SMEs).

To push its entry into the increasingly competitive market, the bank has unveiled products to finance SMEs that require working capital or expansion financing.

The bank’s General Manager Mr Japheth Kisilu said the institution has rolled out a credit facility branded Loop — Loans on Order of Purchase — to provide short-term credit to enterprises.

The product will avail working capital against non-traditional security.

"We aspire to become the leading bank in providing products that will boost the growth of the sector," said Kisilu.

Consolidated Bank is rolling out new products targeting small businesses as it embarks on an expansion binge. One of the products, branded Loop, provides short-term credit against non-traditional security. Photo: File

He said the bank’s strategy is to increase the flow of credit and financial services to the sector.

The bank, is one of the 16 parastatals targeted for privatisation, is fully-owned by the Government with the majority shareholding (51 percent) held by the Treasury through the Deposit Protection Fund (DPF).

The remaining shareholding is spread over 25 parastatals and other government related organisations.

The bank, with a significant presence in Central and astern provinces, believes there is need for affordable credit to be extended to the numerous SMEs, which operate in the countryside and are in dire need of financing to boost their business activities.

Umoja Branch

Last week, the bank opened a branch in Umoja at the junction of Outering road and Kangundo road — an area teeming with numerous small-scale businesses.

It is estimated that SMEs constitutes about 70 per cent of all businesses in the country.

The sector is on the radar of many commercial banks because of the numerous lending opportunities it provides. The growth in the economy over the last five years has spawned a number of small and medium scale start-ups, many of which have been accommodated by smaller banks that are seen to be more flexible than their large counterparts.

Lending products tailor-made for SMEs have been key drivers behind the increased growth in business for small banks.

The Consolidated Bank’s expansionary strategy targeting SMEs comes at a time when Central Bank of Kenya (CBK) says that deposits continue to be a major source of funding for banks.

According to the CBK’s November 2008 Monthly Economic Report, the banking sectors’ deposits remained the primary source of funding for the banking sector. Deposits represented 77 per cent of total liabilities and capital of the institutions at the end of October last year compared with 80 per cent in October 2007.

Loans and Advances

Gross loans and advances, as at the end of October, stood at Sh679 billion compared with Sh504.7 billion recorded in October 2007, representing an increase of 34.5 per cent.

The banking industry extended credits to various sectors of the economy including private households, manufacturing, trade, business services and other sectors.

Total Loans and advances, net of provisions stood at Sh637.1 billion in October last year compared with Sh461.6 billion in October 2007.