Micro, Small and Medium-sized Enterprises remain the principal engine behind Kenya's economic growth. According to the Kenya National Bureau of Statistics (KNBS), more than 7.4 million MSMEs in the country provide employment to approximately 14.9 million Kenyans in various sectors. However, with the adverse impact of the COVID-19 Pandemic on the SME sector, coupled with pre-existing barriers, the sector faces an acute challenge in its ability to access affordable credit to sustain its operations.
To address this, the National Treasury together with Central Bank of Kenya, Office of the President - SME Advisory Unit, Ministry of Trade, Kenya Bankers Association, Association of Micro Finance Institutions, donors, and other stakeholders spearheaded the development of a Credit Guarantee Scheme (CGS) to promote enterprise growth by enabling access to quality and affordable credit. For the first phase of the program, the National Treasury has partnered with DTB and other banks to implement the Scheme as a COVID response facility.
FAQs on the Credit Guarantee Scheme
What is a Credit Guarantee Scheme?
A Credit Guarantee Scheme (CGS) is an arrangement designed to reduce risk associated with lending to MSMEs. It is like an insurance policy that gives lenders confidence to extend credit to potentially high-risk borrowers.
If we cannot directly access the Kshs 3billion from the Government, how is this program helping SMEs?
Through the credit Guarantee Scheme, DTB is now able to disburse affordable loans faster, lend more and take on more riskier SME borrowers. Benefits of the CGS to the borrower include:
- Attractive repayment periods.
- Lower loan security requirements i.e., easier collateral requirements.
- Ability to lend to more MSMEs, who were previously considered risky
Is this SME Guarantee like a grant?
The funds disbursed under this Programme are not grants. These are loans which result into a contractual debt obligation. The capital (money) that MSMEs will access through DTB will need to be repaid according to the agreed terms and conditions and in line with the gazetted CGS regulations. As such, there are penalties for loan default under this program.
Where can borrowers access loans under the CGS?
Loans under this program are currently available at DTB. Applicants should contact their nearest DTB branch or call 0719 031 888.
How will the Government ensure the banks do not take advantage and over-charge the MSMEs or become unfair in any other way?
Every participating bank will provide performance reports to the Administrator at National Treasury, as per the Public Finance Management (Credit Guarantee Scheme) Regulations, 2020. This reporting mechanism is designed to enable accountability and full transparency.
Are there any consequences for an MSME that borrows and fails to pay back or uses the money for expenses other than what the loan was approved for?
Yes, there are consequences for failure to repay the loan and for loan fraud. As stipulated in the Public Finance Management (Credit Guarantee Scheme) Regulations 2020, borrowers face prosecution of up to two years should they fail to do the following:
- Willfully apply the funds borrowed under the guaranteed credit facility to any purpose other than the purpose for which the credit was approved.
- After securing the loan under the guaranteed credit facility, knowingly destroy or misappropriate any security given.
- Knowingly give false information; or
- Willfully destroy any assets used as collateral by a participating financial intermediary.
How else is DTB supporting MSMEs?
Apart from being one of the first banks that signed up to the Credit Guarantee Scheme, DTB holds financial literacy training sessions aimed at equipping SMEs with business management skills. DTB also offers affordable,relevant insurance services to cushion SMEs from market risks.