Central Bank of Kenya Governor Patrick Njoroge at a past press briefing in Nairobi, April 30. [Elvis Ogina, Standard]
Business News
. Worry is lifeline unlikely to come before July when the next financial year kicks in
Central Bank of Kenya (CBK) Governor Patrick Njoroge has urged the
government to urgently unveil the planned credit guarantee scheme to
forestall the death of small businesses.
Briefing the press in Nairobi yesterday, Dr Njoroge noted that micro,
small and medium-sized enterprises (MSMEs) have thin buffers, which can
barely last them more than two months.
Pointing out that it was still unclear when the scheme would be rolled
out, the governor said it had to “be as soon as possible”.
“MSMEs don’t have a lot of buffers. They generally would die quickly,”
said Njoroge during the regulator’s post-Monetary Policy Committee (MPC)
briefing. He cited a survey which showed that three-quarters of SMEs do
not have cash that could last them past two months, with most of them
unlikely to survive beyond June.
“They (MSMEs) are on the ropes,” said Njoroge, noting that they needed
both financing and other assistance, such as being provided with
appropriate solutions and products.
Under the guarantee scheme, the government will pay part of the loans
taken by SMEs, thus enabling banks to extend more loans to small
businesses at lower rates.
However, it looks like the fund might be implemented in the next
financial year that starts in July, way past next month when Njoroge
noted most SMEs are expected to buckle under the weight of the Covid-19
pandemic.
As part of his Sh53.7 billion eight-point economic stimulus programme
that he unveiled on Saturday, President Uhuru Kenyatta noted that the
government will inject Sh3 billion as seed capital for the SME Credit
Guarantee Scheme.
“The intention here is to provide affordable credit to small and
micro-enterprises and to do so in an efficient and structured manner,
borrowing from the professional standards and practices of private
sector credit arrangements,” said President Kenyatta.
The National Treasury and a number of International Finance Institutions
(IFIs), including the World Bank, are working on modalities of the
scheme.
Having a credit guarantee scheme in place will ensure that banks lend
to risky borrowers, including SMEs without fearing default.
In his last press briefing, Njoroge was, however, quick to clarify that
such a scheme was likely to have less moral hazard where borrowers
default knowing that they are guaranteed, a situation that would hit the
government coffers. “This will ensure that SMEs borrow at rates that
are affordable. Work is ongoing in that area and will come into fruition
in the near future,” he said.
To support financial sector lending to MSMEs, the World Bank has
proposed the enhancement of de-risking instruments such as
payment/credit guarantees for small enterprises.
Credit to the private sector in May grew by nine per cent in the 12
months to April, with manufacturing registering the highest jump at 20.1
per cent.
Credit growth to trade grew by 10.3 per cent, transport and
communication (9.1 per cent), building and construction (7.7 per cent)
and consumer durables (19.6 per cent).
CBK on Wednesday retained its benchmark lending rate - the Central Bank
Rate (CBR) - at seven per cent, signalling cheaper loans for borrowers
distressed by the Covid-19 pandemic.
Following the outbreak, the repayment period of personal/household
loans amounting to Sh102.5 billion, or 13.1 per cent of the banking
sector personal/household gross loans, had been extended by the end of
April.
For other sectors, a total of Sh170.6 billion had been restructured,
with beneficiaries being trade, manufacturing, tourism and real estate.
This pushed the total loans restructured to Sh273.1 billion. The
retention of CBR came at a time when banks are swimming in cash, with
the interbank rate, or the rate at which banks lend to each other,
dropping to a low of 3.4 per cent by the end of yesterday. The interbank
rate, which is critical for banks under a cash crunch, was at 3.92 per
cent on Tuesday.
This year, the economy is expected to register a slower growth than in
2019 when the gross domestic product (GDP) expanded by 5.4 per cent.
Most forecasters expect real GDP to expand by less than three per cent.
However, banks have also been forced to set aside billions as insurance against possible loan defaults.
With prudential rules requiring any loans to be put under watch even
before they become non-performing (not serviced for more than three
months), banks have been provisioning for loan-loss even for accounts
whose loans have been restructured.
Banks have also been recalling dividends just in case they are faced with a liquidity crisis, a move that Njoroge supported.
He said in case banks need additional liquidity, they will still need
shareholders’ funds. “It is important; in the end if they need
additional liquidity it should come from shareholders,” said Njoroge.
Bad loans, those which have gone for more than three months without
being serviced, as a share of gross loans increased to 13.1 per cent in
April, compared to 12.5 per cent in March.
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