Capital Markets
Nairobi grabs lion’s share of State backed loans for small enterprises
Tuesday April 11 2023
Nairobi City Skyline. FILE PHOTO | NMG
Nairobi businesses took over half of the Sh3.32 billion loans under a State-backed guarantee scheme meant to de-risk small firms, highlighting the economic might of the city.
An analysis of the data shows that medium, micro and small business based in the city took Sh1.73 billion or 52.1 percent of the loans in the financial year to June 2022, followed by those in neighbouring Kiambu at six percent (Sh217 million) and Sh177 million (five percent) for those in Mombasa.
The huge Nairobi share underpins the city’s status as the commercial hub of Kenya amid a high appetite for credit from firms and traders who are unable to get credit from banks.
The Treasury rolled out the Credit Guarantee Scheme (CGS) in December 2020 in a bid to enhance access to quality and affordable credit for businesses, which would otherwise find it difficult to get loans from commercial lenders. MSMEs are struggling to get loans from banks with the economic meltdown of the Coronavirus pandemic further pushing lenders away from advancing to the traders, prompting the State’s intervention.
“This could be explained by the concentration of MSMEs in urban centres and [bank] branches across the counties implying high demand of credit in these areas,” the report that was tabled in Parliament reads.
“Mandera county is yet to record beneficiaries under the CGS. This may be because only KCB among the participating financial intermediaries has a presence in Mandera.”
The data shows that businesses in Nairobi, Kiambu, Mombasa, Kisumu and Nakuru accounted for 61 percent of the loans issued, attributed to the high number of commercial activities in the cities and high branch network of the banks picked to issue the credit lines.
Some 1,033 businesses in Nairobi took the loans followed by 157 in neighbouring and 123 in the coastal city of Mombasa. A total of 2,190 businesses received the loans in the period under review.
The loans are capped at Sh5 million with a tenor period of three years. Firms enjoy a grace period of five months for the loans whose interest rate is discounted based on the risk profile of the borrower.
The Treasury picked KCB Group, NCBA, Stanbic, Absa, Co-operative Bank, DTB and Credit Bank to issue the loans. The lenders are compensated for up to a quarter of losses from default using the cash provided by the Treasury.
