The National Treasury is working on a long term plan to establish a credit guarantee scheme for Small and Medium Enterprises with the aim of increasing their credit worthiness.
In the plan, financial institutions will give credit to SMEs without collateral and in the event of a default; the government will work out a mechanism of repaying the loan on their behalf.
The capping of interest rates at 4 percent above the Central Bank Rate has had a negative ripple effect in some instances.
A study conducted by the Central Bank of Kenya on the impact of interest rate cap on the Kenyan Economy in April showed that the cap led to a reduction of loans given to SMEs, thus defying its intended objective of increasing credit access to individuals and small and medium enterprises.
The scheme will allow a third party, the government, pledge to repay some or the entire loan amount to the lender in case the borrower defaults.
Assistant Director in the Ministry of Industrialization, Mathew Nyamu says the credit guarantee will aim to ease financial constraints that SMEs and startups face as it will reduce credit risk and make it possible for borrowers to obtain credit.
They noted that they are engaging banks and creating forums where SMEs can gain skills on how to put their financial structures in order to access loans.
Now in its 3rd edition, SME FEST2018 is expected to attract over 1000 SMEs and will focus on opportunities available for SME’s in the Big 4 Agenda.