NIC Bank Kenya has signed a Loan Portfolio Guarantee agreement amounting to Ksh 515,900,000 (USD5.1 million) with the African Guarantee Fund for Small and Medium-sized Enterprises (SMEs).
The partnership aims to unlock financing intended to facilitate the promotion, growth and development of SMEs in Kenya.
This comes in the wake of a continued credit crunch in the market, occasioned by the interest rate cap law in the country.
Since the law came into place in 2016, banks have been lending more to the government, shunning the private sector and individuals whom they term ‘high risk borrowers’.
Speaking during the partnership launch, AGF Group Deputy CEO Jules Ngankam noted that the objective is to provide partial credit guarantees and capacity development to NIC Bank to stimulate financing of SMEs, thereby unlocking their potential to deliver exclusive growth in the continent.
“With this partnership, we are going to increase access to finance for more SMEs. This will mean more job creation and revenue generation which directly aligns with AGF’s mission of catalyzing economic growth and poverty reduction in Africa. AGF is proud to have partnered with a bank that has a vision for SMEs and believes in their potential to spur the growth of this country,” he said.
On his part, NIC Bank Corporate Director Ellie Chiuri reaffirmed the banks position in striving to be the leader in offering financing solutions backed by uniquely competent trade and relationship management experts, wide correspondent banking network and a unique ability to handle risk management.
“We support our trade finance customers with innovative products and services and specialist expertise in sectors like agribusiness, manufacturing, trading, health, transport and communication, energy, government and education. We customize our products and services to meet our clients’ specific account management, payments, collections and liquidity management requirements,” Chiuri said.
SMEs in Kenya, like in other African countries face major challenges when seeking financing in order to expand and grow their businesses.
Recent studies have shown that SMEs in Kenya employ approximately 14.9 million Kenyans and contribute an estimated 28 per cent of Kenya’s Gross Domestic Product.
However, majority of SMEs in Kenya do not get to celebrate their third anniversary because 46 per cent collapse within their first year while approximately 400,000 die within their second anniversary, Kenya National Bureau of Statistics data indicate.
The partnership between NIC Bank and AGF is seen as a strategic move that will enable SME customers seeking trade financing, overcome the financing barrier.
The loan portfolio guarantee facility will see AGF share the risks envisioned by the bank in situations where the target SME clients are unable to meet collateral threshold requirements.