Kenya entrepreneurs lacking collateral to access credits to expand or actualize their business ideas have been given a lifeline, thanks to a credit insurance scheme by African Trade Insurance (ATI) that guarantees members at credit outlets.
The member of the credit scheme is supposed to submit monthly premiums of Sh200 for the insurance company to guarantee or recommend him to a creditor. In case the borrower fails to repay the loan, the insurance is forced to shoulder the burden. One has to register and pay premiums of at least three months to enjoy benefits.
This unique insurance scheme is boosting SMEs confidence in the eyes of credit lenders who have for a long time been denying them credit facilities for fear of defaulting. This problem has forced banks to come up with strict and bureaucratic loan processing procedures, locking out budding entrepreneurs with feasible business ideas.
The Insurance Company for instance is implementing the initiative in conjunction with the NIC bank in Kenya. NIC bank has taken up ATIs insurance cover product to protect their portfolio of trade finance borrowers against the risk of failure and non-payment risks that have prevented most African banks from lending to SMEs.
According to the African Trade Insurance Agency CEO George Otieno, as the access to credit remains the biggest challenge for SMEs in the region, the credit insurance cover will help extend credit facilities such as short term loans, invoice discounting, bank guarantees and letters of credit without the requirement of the solid securities as is the current practice.
‘’What we did is that we looked at what we could do to make it easy for SMEs to borrow and we designed this product. It took us quite some time, we’ve been working on it for almost a year with the NIC,” he explained.
He added that other banks in the country have begun looking at it and he believes that it will roll out in other countries where they do business in Africa.
This partnership will also reduce procedures for loan processing hence allowing members to obtain credits within 48 hours of application.
“What is going to be able to happen now is that NIC is going to be able to turn around and within 48 hours be able to offer a loan facility because they don’t have to go through the process of charging any property or doing a search, ‘said Otieno.
The ATI products also stand to impact the Kenyan financial industry as it provides protection against credit default risks thus opening up a window of opportunity of both the SMEs and the banks to benefit.