Equity Centre in Nairobi. FILE PHOTO | NMG
Equity Bank #ticker:EQTY is set to take a $100 million (Sh10
billion) long-term loan from the International Finance Corporation (IFC)
to shore up the capital of its Kenyan banking subsidiary and lend to
local small and medium-sized firms.
IFC did not
disclose the cost of the debt but noted that it will be subordinate–rank
below other loans with regard to claims on the bank’s assets.
The
transaction marks the international financier’s increased lending to
local banks, with the institution having provided billions of shillings
to companies such as Co-op Bank. #ticker:COOP
“The
project consists of an up to $100 million (Sh10 billion) subordinated
loan to Equity Bank (Kenya) Limited to strengthen the bank’s regulatory
capital and support its lending programme to the underserved micro,
small and medium enterprises (MSMEs) segment in Kenya,” IFC said in its
investments disclosures.
Part of the cash will also be
used to support Equity’s financing of renewable energy projects. In
addition to disbursing the loan, IFC will offer advisory services to the
bank to strengthen its capacity to serve SMEs.
The
global lender typically provides loans with an agreement that the funds
will be used to lend to SMEs, women-owned firms and green energy
projects as part of its social and environmental impact investing.
“The project is expected to have a catalytic effect on SME
finance and sustainable energy finance in Kenya and attract more banks
into these segments,” IFC said.
Set criteria
Firms
that are expected to benefit from Equity’s onward lending of the IFC
loan are those fitting the set criteria such as having between 10 and
300 employees or annual sales of Sh10 million to Sh1.5 billion.
The loan size per borrower will range from Sh1 million to Sh200 million.
Local
banks are increasingly taking substantial loans from global funds such
as the IFC, European Investment Bank (EIB) and Agence Française de
Développement (AFD), attracted by relatively more favourable terms of
the debt including lower interest rate and longer maturity.
KCB
#ticker:KCB and Equity are among the banks that have borrowed from
international financiers to fund their long-term lending business.
The
lenders have complained of a mismatch between long-term loans and
deposits that are mostly short-term in nature, exposing a gap that they
have chosen to fill by credit from the institutions which charge
single-digit interest rates.
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