The Government plans in unveiling a credit guarantee scheme for small and medium enterprises (SMEs) in order to boost economic growth, Kenyan President Uhuru Kenyatta said on Thursday. Kenyatta said the scheme will address the challenges of access to credit, training and skills development.
“In this regard, we will be launching an “SME Credit Guarantee Scheme” in few weeks, aimed at deepening their access to credit without being subjected to complex application procedures and collateral requirements,” said the President when he delivered a state of the nation address at a joint sitting of both Houses.
He said his administration recognises the role played by micro, small and medium enterprises in spurring the development of our country. “The sector employs approximately 14.9 million Kenyans and contributes an estimated 28 % of our GDP.”
“These interventions are critical to the production of competitive goods and services for the domestic, regional and global markets,” said Kenyatta.
The SME credit guarantee scheme will receive funding from the National Treasury and will repay banks in case SMEs default on their loans.
In Kenya, most financial institutions are unwilling to lend due to the interest rate cap, which has made them adopt a more stringent credit risk assessment framework thus limiting lending to riskier borrowers.
Kenyan legislators capped interest rates at 4% points above the central bank’s benchmark in 2016. The law was termed unconstitutional by the court and, suspended the ruling for 12 months to allow parliament to re-examine the law.
The Central Bank of Kenya called for a focus on deep structural reforms for uplifting the growth and expansion on the MSMEs in the medium to long term.