CBK roots for Treasury SMEs credit guarantee

Central Bank of Kenya (CBK). FILE PHOTO | NMG 

By BRIAN NGUGI
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Summary

• The Central Bank of Kenya (CBK) is calling for the speedy establishment of a credit guarantee scheme to shield lenders and small businesses against the economic effects of the Covid-19 pandemic.
• Under the proposed scheme, the Treasury said last year it would provide third-party credit risk mitigation to commercial banks by absorbing a portion for losses on small and medium-sized enterprises (SMEs) loans in the event of default.

The Central Bank of Kenya (CBK) is calling for the speedy establishment of a credit guarantee scheme to shield lenders and small businesses against the economic effects of the Covid-19 pandemic.

Under the proposed scheme, the Treasury said last year it would provide third-party credit risk mitigation to commercial banks by absorbing a portion for losses on small and medium-sized enterprises (SMEs) loans in the event of default.

“Given the critical role of micro small and medium-sized enterprises (MSMEs) in the economy, there is an urgent need for more interventions to support the sector, such as by a credit guarantee scheme to de-risk lending by banks and increase credit uptake in the sector,” said CBK governor Patrick Njoroge following a Monetary Policy Committee meeting on Wednesday.

The Treasury first floated the proposal for a credit guarantee scheme in May 2018 when it said it would guarantee commercial bank loans to SMEs as part of an effort to reduce the risk profile, keep loan prices low and to ease access to credit.

Credit to the private sector, the CBK said, grew by 8.9 percent in the year to March, compared to 7.7 percent in the year to February, which is both below the ideal growth level of between 12 and 15 percent to support economic growth.