State-owned Kenya Development Corporation (KDC) is stepping up lending to the country’s small and medium-sized businesses under a Sh2 billion ($1.5 million) low cost credit line supported by India’s Export-Import Bank.
The credit line is open for SMEs to finance capital goods purchase from India in the push to boost technology transfer from the Asian nation.
Private sector credit growth has been sluggish in recent months in the wake of Kenya’s soft economy and an increase in lending rates, forcing lenders to cut back on loans to high-risk groups such as small and micro businesses.
Under the Exim Bank deal, KDC is offering small businesses loans of a minimum of Sh6.5 million ($50, 000) with a repayment period of up to 10 years and attracting an interest rate of less than 10 percent.
The firms shipping in plant machinery from India under the deal enjoy tax exemptions, notably VAT, import duty and levies.
KDC is seeking to boost uptake of the facility as EXIM Bank prepares another round of funding.
“KDC plays a crucial role in supporting businesses throughout the application and procurement process, providing expert advice and utilisation of the facility,” Hassan Abubakar, the principal secretary in the State department for Investment Promotion said yesterday.
He added that the KDC strategy is in line with the Bottoms-up economic model, which seeks to invest in the farming sector and small businesses to help create jobs and cut poverty.
The bulk of the Kenyan economy is in the informal sector, with most of the small businesses relying on borrowing from friends or family.
KDC is seeking to lend billions of shillings to small and medium businesses riding on funds mobilised from various sources such as the World Bank and EXIM Bank.
This emerges at a time when the EXIM Bank is engaged with various African governments as part of India’s economic diplomacy amid rising competition from China.
Under the EXIM Bank deal, SMEs are required to source two thirds of goods or services from India as Kenya seeks advanced machinery while the companies from the Asian nations get access to fast-growing African markets.
So far, 18 firms have tapped $6.5 million (Sh386.9 million) from the kitty, according to Naveen Joon, the east Africa head for EXIM Bank.
“We are encouraging Kenyan firms to absorb the remaining financing facility and I want to confirm here that we will be more than happy to sign another deal to extend the credit offering once this is used up,” said Mr Joon.
