Sh4 billion fund out to boost small enterprises

By John Njiraini

Businesses in the informal sector seeking to expand can now access cheap credit following the launch of a Sh4 billion fund.

The Micro and Small Enterprise (MSE) Fund, launched by the Government yesterday will enable holders of small businesses to access loans at affordable rates, ultimately giving them an opportunity for growth.

"Through this fund, we will be taking the necessary steps to transform the MSE sector to be one of the key drivers for achieving a broad based economic growth, employment creation and poverty eradication," said Finance Minister Uhuru Kenyatta during the launch at Treasury.

The fund, which will be administered through commercial banks that will on-lend to informal sector traders at interest rates lower than the existing market rates, is targeted at about eight million Kenyans directly employed by the informal sector.

The participating banks, identified through a competitive bidding process are Equity Bank, Co-operative Bank and K-Rep Bank.

Yesterday, Treasury signed contracts with the three banks for the first phase of the fund involving Sh750 million.

Another Sh3 billion would be released in due course, while Sh800 million has been set aside for capacity building to increase the effectiveness of the fund.

Matching funds

Uhuru said the participating banks would be required to provide matching funds to increase the amount of money available under the programme.

Consequently, this means that for every Sh1 invested by the Government in the fund, participating banks will put in Sh5 in matching funds.

The banks will also be expected to assume risk and mitigate against non-repayment of credit advanced through the fund.

"Our goal is to provide financial inclusion by broadening financial outreach and increasing access to credit for MSEs," he said.

He added that banks must ensure loans are dispersed fast and at affordable rates.

According to various studies, lack of access to affordable and flexible credit facilities is one of the major obstacles for growth of MSEs. It is a major contributor to the high mortality of MSEs. Research shows that one in every three MSEs dies before the third birthday mainly due to lack of funds for expansion.

"It will be cheaper to borrow from this fund because the rates will be subsidised," said K-Rep Bank Managing Director Albert Ruturi.