Bankers have come out to insist that the sh30 billion SME facility will still be implemented, regardless of the President’s decision on the Banking (Amendment) Bill. The Bill says that banks should charge at most four per cent of the base rate set by the Central Bank of Kenya (CBK).
CBK introduced the Kenya Banks’ Reference Rate (KBRR) in June 2014 to be a reference point for banks to determine interest rates charged to clients but it has yet to be an effective tool to lower interest rates. Today, some banks currently charge as much as 25 per cent interest.
The move to offer the SME facility to the banks has received criticisms from various quarters, key among them legislators who urged the President to ignore the move as not only reactionary but insincere from the banks.
MPs Jude Njomo (The Bill’s sponsor), Kimani Ichung’wa, Kareke Mbiuki, Abdikadir Omar Aden and Victor Munyaka asked the President to assent to the Bill and ignore the claims by the banks that it would not be good for the economy and would result in the growth of informal, unregulated lending.
However, the Kenya Bankers Association (KBA), the umbrella body representing the banks insists that the SME facility has been an intervention they have been working on for some time. They added that regardless of the decision taken by the President, the facility will remain.
Out of the total sh30 billion, the banks said that sh10 billion will be allocated to women and youth-owned micro enterprises. They anticipate the lending rates on this fund to be concessionary and not to exceed 14.5 percent.
This program will materially address the issue of affordability of loans for business owners and entrepreneurs with good credit track records; and support clients in areas such as working capital, read a statement from the association.
The banks promised that they will work with Kenya Bankers Association Secretariat to operationalize this SME program immediately and register each bank’s allocation. Banks must formerly declare their allocation and report progress on a quarterly basis with the first reporting cycle on 1st November 2016. Currently, the mechanics of how much each bank will contribute are being worked on.
Banks will collectively set aside part of their loan portfolio aside for lending to SME under this program. The SMEs in the program will undergo capacity building that will be carried out by KBA. The curriculum and platform are currently being developed. Then the SMEs in the program will access loan on a fixed rate proposed at 14.5 percent.
CBK will monitor the progress of the implementation. By February 2017, the goal would be to have sh5 billion worth of preferential rate loans extended to SMEs. The banks added that they will actively review their portfolios towards identifying the SMEs that have credit lines with the banks, to determine if these clients are eligible for the support facility.
Meanwhile, the banks also promised to set up a sh100 million facility for technical assistance program for micro, small and medium-sized enterprises (MSMEs) towards enhancing their ability to secure financing from banks. The industry will establish a governance framework including sector stakeholders to oversee the implementation of this program which will be launched in January 2017.