Micro, Small, and Medium Enterprises (MSMEs) are crucial to Kenya’s economic growth and employment generation, as emphasized in Vision 2030 and the Third Medium Term Plan (2018-2022). Kenya has over 7.4 million MSMEs, which employ about 14.9 million people in all sectors of the economy and account for approximately 40% of the country’s GDP. MSMEs are vital for inclusive economic growth as they operate in diverse fields across the economy.
However, MSMEs face significant challenges, such as constrained access to finance for capital and operational needs, market challenges, and weak business strategies, leading to a high failure rate for start-ups. Even when MSMEs access credit, they face unfavorable loan conditions due to a lack of sufficient collateral, high collateralization requirements, short payback periods, informal markets, inaccurate data, and high-interest rates. The Covid-19 pandemic has further worsened the situation for many MSMEs, leading to lower turnover and disruptions in the market and supply chains, making it difficult to obtain affordable and high-quality loans under traditional arrangements.
In light of the above, the National Treasury rolled out the Credit Guarantee Scheme (CGS) by entering into risk-sharing agreements with participating financial institutions (PFIs) on Dec 8 2020 to support MSMEs to access quality and affordable credit. This is anticipated to help MSME businesses stay afloat and safeguard employment during and after the Covid-19 Pandemic. The Credit Guarantee Scheme is anchored on the Public Finance Management Act, 2012, and the Credit Guarantee Scheme Regulations. 2020.
In the 2020/21 financial year, the Parliament allocated K.Shs. 3 billion as initial seed capital for CGS. The Credit Guarantee Scheme for MSMEs is currently being delivered through a risk-sharing agreement between the Government and seven participating banks. The seven banks are Absa,
Cooperative, Credit, DTB, KCB, NCBA and Stanbic. The banks act as the intermediarics in provision of credit to qualifying MSMEs borrowers based on a pre-agreed Scheme Qualifyinglower turnover and interruptions in the market and supply chains, many MSMEs were affected and continue to be unlikely to obtain affordable and high-quality loans under traditional arrangements
1. Eligible MSMEs: Registered, tax compliant, valid business permit, creditworthy, borrowing for business purposes (PFM Act & CGS regulations)
2. Product: Risk sharing of 50:50 subject to a maximum of 25% of principal amount advanced to an MSME; max. Kes 5M for 36 months; optional moratorium max 5 months.
3. Participating banks: Seven PFIs executed CGS agreements with National Treasury for the current phase
4. Administration: Housed under the National Treasury with oversight by a Scheme Steering Committee chaired by the PS/NT
How to Access the facility.
-Qualifying MSME approaches a PFI for a credit facility
-The credit facility is evaluated and approved based on PFI’s standard policies and procedures
-PFI registers credit with the scheme as part of its portfolio
-Normal collection and recovery process
-Credit facility managed by PFI
-Credit facility is registered as part of PFI portfolio
Performance Highlights for the period Dec 2020 – Jan 31, 2023
1. 2,850 loans issued (KSh. 4.46 billion) to MSMEs
2. 20% of the credit was to MSMEs owned by women, youth, and PwDs
3. Already benefited MSMEs in 46 out of 47 counties
4. The MSMEs so far come from 11 different sectors of the economy
Key performance indicators for the period Dec 2020 – Jan 2023
–Loan sizes: Range from KSh. 30,000 to KSh. 5 million with an average size of KSh. 1.56 million
–Interest rates: Range between 8% & 17%; averaging 13.3%
–Loan Tenure: Range from 1 – 36 months with an average of 25 months
-MSME sizes: 28% of loans were to micro, 58% to small and 14% to medium enterprises
Performance by Economic Sectors
(Refer to chart)
-812 facilities have been fully repaid, releasing the guarantee facility for reallocation.
-Fully repaid facilities amount to KShs. 1.021 billion
-As at Jan 31, 2023, utilization of guarantees was 41.13%
-85% of the facilities are classified as “Normal” in line with Central Bank Risk Classification.
Credits: THE NATIONAL TREASURY & ECONOMIC PLANNING