KDIC mulls higher bank deposit cover for SMEs

Cabinet Secretary, National Treasury & Economic Planning Njuguna Ndung'u at Kenyatta International Convention Centre. FILE PHOTO | DENNIS ONSONGO | NMG    

By PATRICK ALUSHULA More by this Author

Micro, small and medium enterprises (MSMEs) may soon enjoy a higher cover on

their bank deposits as the agency that manages refunds in collapsed lenders mulls a rise from the current Sh500,000 cap.

Treasury Cabinet Secretary Njuguna Ndung’u said last week Kenya Deposit Insurance Corporation (KDIC) is reviewing the adequacy of the Sh500,000 as it seeks to ensure MSMEs are well protected from deposit losses.

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KDIC in 2020 reviewed the amount of deposits that are fully protected from Sh100,000 to Sh500,000 in what was the first increase in 30 years.

“In order to enhance the protection of depositors, the KDIC is in the process of reviewing the current coverage limit of Sh500,000 with a view to ascertain its adequacy in protecting the MSMEs,” said Prof Ndung’u.

It was not clear if the review would result in a new uniform coverage limit or if there is going to be a special limit for MSMEs.

Latest Central Bank of Kenya data shows MSMEs deposits in commercial banks and micro-finance banks stood at Sh774.2 billion last year, being a 28.4 percent growth from Sh602.8 billion in 2020.

Deposits held by MSMEs in commercial banks stood at Sh746.6 billion or 14.9 percent of the total deposits last year while Sh27.64 billion was in micro-finance banks, making up 59.5 percent of total deposits.

The Treasury sees a collapse in banks or micro-finance banks as a threat to the survival of the small businesses that are already battling high loan interest rates.

The last MSME survey done by the Kenya National Bureau of Statistics in 2016 established that there were more than 7.4 million MSMEs in Kenya, which employ more than 14.4 million Kenyans across all sectors of the economy

A higher cover would signal increased contributions from banks and microfinance banks, going by the 2020 review.

The 2020 review saw KDIC switch from charging a flat rate of 0.15 per cent of the average total deposit liabilities or Sh300,000 per bank, whichever is higher, to a range of between 0.15 percent and 0.2 percent depending on the risk profile.

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The implementation of the revised coverage limit saw the total banking industry deposits insured by KDIC jump to 16 percent from seven percent, which accounted for Sh705 billion in 2021, compared to Sh305 billion in the previous year.

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