Co-op to give SMEs unsecured loans terms

Co-operative Bank Retail and Business Banking Division Director Arthur Muchangi (left) and Head of Business Banking Moses Gitau at Thursday’s launch of the MSMEs loans plan. PHOTO | SALATON NJAU | NMG 

In Summary

• Flexible terms buck trend where most financiers have shunned lending to small enterprises
• Most lenders in the risk-averse industry have suspended unsecured personal loans due to a perceived higher risk of default.
• This has been exacerbated by higher impairment costs as a result of global accounting rules enforced last January.

By BRIAN NGUGI
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Co-operative Bank of Kenya #ticker:COOP says it will issue unsecured loans of up to Sh2 million to micro small and medium enterprises (MSMEs) to be disbursed via mobile phones.

The move comes after it obtained a $150 million (Sh15.2 billion) seven-year loan from the International Finance Corporation (IFC) for onward lending to small firms.

The move by Co-op Bank — the country’s second largest bank by market share — bucks the trend where most Kenyan banks have shunned small enterprises since the onset of interest rate controls, citing their perceived high-risk levels.

Co-op Bank acting director for retail and business banking Arthur Muchangi said Thursday that the country’s second largest lender by market share will offer training support for the borrowing enterprises — a process to be overseen by relationship bankers to boost the small firms’ repayment capabilities.

20pc requirement

“Co-operative Bank has committed to align itself with the regulator’s requirement that banks dedicate a minimum of 20 per cent of their lending to the MSME sector,” said Mr Muchangi when the lender launched the loans plan.

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“We are confident of delivering on this promise to MSMEs as we now have the product, the skills and most important the resources to make this a reality.”

“The project comprises a senior loan… to help strengthen the bank’s long-term funding position and enable it to expand its lending operations to the under-served micro small and medium enterprises (MSMEs) segment in Kenya,” the global lender, part of the World Bank Group, said earlier.

Small and mid-sized enterprises have been hard hit following the September 2016 ceilings on loan charges at four percentage points above the Central Bank Rate, presently at nine per cent.

Most lenders in the risk-averse industry have suspended unsecured personal loans due to a perceived higher risk of default.

This has been exacerbated by higher impairment costs as a result of global accounting rules enforced last January.