Capital Markets
BOA Kenya expands lending to MSMEs
Wednesday January 10 2024
The International Finance Corporation has granted a loan facility of $171. 2 million to help Bank of Africa expand lending to MSMEs. PHOTO | DENNIS ONSONGO | NMG
Bank of Africa Kenya is set to benefit from a $171.2 million (Sh27 billion) funding extended by the International Finance Corporation (IFC) to its Casablanca-based parent firm.
The funding is meant to help BOA Kenya and its affiliates increase their lending to small and medium-sized enterprises.
“The proposed project is a multi-currency facility in the aggregate amount of up to $171.2 million to nine Bank of Africa (BOA) affiliates in IDA and FCS countries —namely Bank of Africa Benin, Bank of Africa Burkina Faso, Bank of Africa Cote d’Ivoire, Bank of Africa Kenya, Bank of Africa Mali, Bank of Africa Niger, Bank of Africa Senegal, Bank of Africa Togo, and Bank of Africa Uganda,” IFC said in its investment disclosures.
Read: IFC invests Sh7bn in fund for Africa, Asia projects
“The facility will support the Group in scaling up its lending to micro, small, and medium enterprises (“MSMEs”) in the context of high interest rates which led to tightening liquidity in the region,” IFC added.
The global financier seeks to promote better competitiveness in the MSME finance market by demonstrating the commercial viability of lending to MSMEs and women-owned or led small, and medium enterprises.
According to IFC, MSMEs are firms with employees below 10 to 300 and assets ranging from under $100,000 to $15 million. The institution also places their sales from below $100,000 to $15 million. The loan size per borrower usually ranges from less than $10,000 to $2 million according to IFC definition. Through the facility, BOA Kenya is expected to increase new loans to SMEs and women-owned businesses, which often face greater barriers to accessing funding.
BOA Kenya’s loan book stood at Sh17.3 billion in the nine months ended September 2023, down from Sh18.3 billion a year earlier.
Owner-operated businesses —the most popular form of business in Kenya’s largely informal economy have been locked out of the formal credit market, with a many of them resorting to expensive digital credit providers who charge exorbitant interest rates.
“The most significant expected project-level outcome is the expansion of access to finance for MSMEs in nine Sub Saharan African markets which are particularly challenging for MSMEs,” IFC said.
Read: IFC invests new Sh55 billion in Kenyan firms
“Beyond the project, IFC anticipates a potential to promote greater competitiveness in the MSME finance market by demonstrating the commercial viability of lending to MSMEs and Women owned/led small, and medium enterprises.”
The institution added that the project will also support MSME finance providers by demonstrating the viability of lending to BOP finance providers and crowding in funding from international investors in a challenging context. Last year, BOA adhered to statutory capital requirements after more than doubling its profits in the first three months of the year.
The bank’s core capital to total deposit liabilities ratio which had fallen slightly below the recommended eight percent threshold to 7.8 per cent in the year ended December 2022, met the statutory requirement in the three-month period ended March 31, 2023.
