Kenyan banks increase loans to export SMEs

By STEVE MBOGO Special Correspondent

 A wind farm. Kenya edged closer to setting up the largest wind power plant in the region Thursday with the Africa Development Bank providing a guarantee for the construction of a transmission line to take

In Summary

In the past two months, at least four Kenyan banks have beefed up their balance sheets to meet the demand for financing by exporting firms.

• Bank of Africa Kenya obtained a $25 million seven-year loan from the Dutch Development Bank FMO to finance SMEs.
• Ecobank Kenya launched a drive to attract more exporting SMEs to its loan book. The bank did not disclose how much it expects to loan to SMEs. However, it already has $130 million under management, which officials said can be deployed for SME financing.
• I&M Bank and Jamii Bora Bank recently received $1.1 million and $950,000 in credit guarantees respectively, from the Africa Guarantee Fund, to lend to SMEs.

Kenya’s small and medium sized enterprises have increased their participation in intra-EAC trade, fuelling a demand for credit from local commercial banks that has forced the lenders to seek additional finances.

In the past two months, at least four Kenyan banks have beefed up their balance sheets to meet the demand for financing by exporting firms.

Last week, Bank of Africa Kenya obtained a $25 million seven-year loan from the Dutch Development Bank FMO to finance SMEs.

The previous week, Ecobank Kenya launched a drive to attract more exporting SMEs to its loan book. The bank did not disclose how much it expects to loan to SMEs. However, it already has $130 million under management, which officials said can be deployed for SME financing.

Last year, its parent, Ecobank Transnational Incorporated, was advanced a $230 million loan by the International Finance Corporation, partly to boost its SME lending.

“The demand for financing by Kenya’s exporting SMEs is very high, unlike in our other markets in Uganda and Tanzania,” said Kwame Ahadzi, the managing director of Bank of Africa Kenya.

“The money is exclusively for Kenyan SMEs involved in export and cross-border trade. The money will meet their capital and medium term facilities,” said Mr Ahadzi, adding that most SMEs are applying for loans to bring in equipment and raw materials for production.

I&M Bank and Jamii Bora Bank recently received $1.1 million and $950,000 in credit guarantees respectively, from the Africa Guarantee Fund, to lend to SMEs. The deals are expected to address one of the biggest problems facing small business operators — access to finance.

One of the major reasons for low availability of bank financing is the perception of the high risk of small businesses.

Thus, commercial banks shun lending to this sector, and when they do, they insist on collateral.

A June 2011 study by the Organisation for Economic Co-operation and Development showed that small traders in Kenya are less likely to get financing from banks than their counterparts in other African countries.

By making financing available to SMEs, Kenya will continue to dominate intra-EAC trade; the country accounts for about 45 per cent of total intra-EAC trade. 

Data from the EAC Secretariat shows that Kenya exports mostly manufactured goods, accounting for 31 per cent of its total exports, with chemicals at 22 per cent and machinery at 16 per cent.

“We have experience in arranging credit for projects involving cross-border investments. We are keen on the emerging and growing cross border business opportunities,” said Nok Bwonditi, Ecobank Kenya’s executive director and head of domestic banking.

Demand for SME financing to supply the regional market is expected to be sustained by the current 25-30 per cent annual growth in intra-EAC trade. This growth is faster than in the world markets.