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MSME loans up by Sh224 billion in three years

By Esther Dianah | September 29th 2021
Dorothy Akoth sorts her fresh dagaa harvested from Lake Victoria in Litare beach Homa bay county. Women along the beach have dominated the onshore post-harvest sector and they are the main actors for small-scale processing of the commodity. Omena which is rich in calcium and Vitamin A is caught by fishermen and landed at the lake site where it is mainly sold by women. [Collins Oduor, Standard]

Loans uptake by small businesses has increased by 15 per cent in the last three years, helped by aggressive marketing by commercial and microfinance banks.

Data from Central Bank of Kenya shows micro, small and medium-sized enterprises (MSMEs) had borrowed Sh638 billion as of December 2020 compared to Sh413.9 billion at the same time in 2017. 

The uptake by the small businesses grew faster than the overall banking sector annual growth that stood at 11 per cent over the period.     

Accounts owned by MSMEs also increased by 14 per cent during the period to 915,115, according to the CBK Bank Supervision Annual Report 2020.

The report attributed the increase in loan accounts to enhanced marketing targeting MSMEs by commercial and microfinance banks as they competed for greater market shares.

Of the Sh638 billion advanced to MSMEs, commercial banks lent Sh605 billion (95 per cent), while microfinance banks lent out Sh33 billion.

“Income generated by commercial and microfinance banks from lending to MSMEs stood at Sh66.8 billion in 2020,” the report said.

“This is 11.3 per cent of the total income of the banking sector, a decline from 2017 when the overall income stood at 74.1 billion.”

The decline was a result of subdued business due to the Covid-19 pandemic, which had an impact on income generation and debt servicing capacity of small businesses.

In 2019, lenders restructured loan facilities with the aim of providing relief to borrowers to better manage their credit performance.

Last year, the restructuring was largely aimed at cushioning borrowers that were affected by the pandemic.

“The Central Bank of Kenya provided guidance on restructuring of loans which were performing by March 2, 2020 with the commercial banks bearing the cost of restructuring,” CBK said in the report.

Listing of negative credit information for customers whose loans were previously performing and had become non-performing after April 1, 2020, was also suspended for six months. 

To mitigate the impact of the pandemic, CBK also removed charges for low-value mobile money transactions for up to Sh1,000.

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