Co-op Bank to borrow Sh10.7bn from IFC

The Co-operative Bank headquarters in Nairobi. PHOTO | FILE  

By MUGAMBI MUTEGI

In Summary

• The Sh10.7 billion loan will be used for onward lending to small and medium enterprises.
• The funds will also be disbursed through Co-op’s mortgage arm to the construction industry.

The Co-operative Bank of Kenya is set to receive Sh10.7 billion ($105 million) in long-term financing from the International Finance Corporation for onward lending to small and medium enterprises

IFC, the World Bank’s private lending arm, has disclosed its intention to advance the money to Co-op Bank, setting the lender up for a loan book boost.

The loan, with a maturity period of up to seven years and a two-year grace period, will also be disbursed through Co-op’s mortgage arm to the construction industry.

The lender, in the first half ended June, advanced Sh204.8 billion to its customers with SMEs accounting for just five per cent of the amount or Sh10.2 billion, hence the move to boost this segment.

Dollar liquidity

“The project (financing) will enhance access finance to SMEs… in Kenya thereby increasing their growth and competitiveness and foster economic development in the country,” the IFC said in its disclosure documents.

“The project will also provide a systemic bank in Kenya with much needed US dollar liquidity necessary to help the bank grow its long-term lending in a sustainable way.”

READ: Cost cutting lifts Co-op Bank's half year net profit 32 pc

The new line of credit will comprise $60 million (Sh6.1 billion) directly from IFC’s account with the $45 million (Sh4.5 billion) balance coming from the corporation’s Managed Co-Lending Portfolio Programme (MCPP).

The MCPP is a new IFC syndicated product which allows institutional investors to participate in its long-term loan portfolio by providing capital which is then deployed to investments across the world.

Co-op Bank is seeking this new loan from IFC having already completed a drawn down of $60 million (Sh6.1 billion) it received from the financier in December 2012 for onward lending to SMEs and agribusinesses.

While interest rate details of the new loan have not been made public, the 2012 loan had an element of fixed and variable rate which is pegged to the LIBOR rate.