Growth-hungry African Guarantee Fund is already making a mark in credit-deficient Small and Medium-sized Enterprises sector in Kenya, nine months after official launch on June 1, 2012.
In two days’ time, the Pan African SME Fund headquartered in Kenya’s capital, Nairobi, has separately inked deals with two commercial banks for onward lending to SMEs- a business segment that dominates the economy of the largest economy in Eastern Africa.
On Thursday, the AGF put pen to paper for a Sh200 million ($2.3 million) guarantee loan with Kenya’s largest privately owned bank, the Commercial Bank of Africa.
The deal unveiled to journalists in Nairobi takes the Fund’s guarantee loan portfolio in two days to Sh300 million (about $3.48 million).
This is after it reached a similar agreement with mid-sized, 39-year old Investments & Mortgages (I &M) bank on Wednesday for Sh100 million ($1.1 million).
The AGF Chief executive Felix Bikpo backed innovative and diversified SME banking products to be the engine of economic growth not only in Kenya but across Africa.
This will be realised by creating new job opportunities, developing capital markets, boosting government revenue and foreign exchange reserves.
The role of the SMEs is not contradicted even in the public sector. The Kenyan government has long adopted the sector’s development as a key pillar for creating wealth and employment under sessional paper number two of 2005.
Under the country’s long term development blueprint, the Vision 2030 (2008-2030), SMEs have been underpinned as integral in achieving a targeted ambitious 10 per cent annual growth in the country’s under-performing economy.
However, the sector has long been shunned by lenders due to a perceived high risk profile.
A preliminary study on Structured Credit Guarantee Schemes in November 2011 by Strategic Business Advisors (Africa) Ltd, for example, established that the sector faces up to Sh500 billion ($6 million) in financing gaps, hindering their expansion in the process.
The growing interest from commercial banks could therefore be a relief.
“We are aware of the struggles that many entrepreneurs in the SME sector face in raising capital for their businesses,” CBA chief executive, Jeremy Ngunze said at the bank’s headquarters in Nairobi. “It is as a result of the inadequate access to finance that CBA is happy to be associated with AGF, because our agreement will help businesses get innovative credit solutions and thereby support their growth.”
Financial guarantees for SMEs is key to supporting economic development and poverty reduction in Africa, Nguze reaffirmed.
He added: “AGF not only provides support towards banks facilitating credit to the SME sector but also work with them in building capacity which we are looking forward to.”
When it launched in June last year, AGF had a capital of $50 million(about Sh4.3 billion) but set a target a 10-fold growth to $500 million(about Sh43 billion).
Initial investment into the Fund came from the African Development Bank, Spanish Agency for Development Cooperation (AECID) and the Danish Development Agency (DANIDA).
The two lenders join their bigger publicly trading rivals who have already secured foreign funds for onward lending to the “in-demand”SME sector.
They include the country’s third largest bank by assets, Co-operative Bank, that signed a seven-year loan of $60 million (Sh5.15 billion) from the International Finance Corporation (IFC), the private sector lending wing of the World Bank Group, on December 5, 2012.
Earlier on May 28, Equity Bank, the largest lender by customers, had also reached a $100 million (Sh8.6 billion) loan agreement with IFC to boost lending to small businesses and expand its regional business.
But all the banks have kept cards close to their chest on interest rates to be charged, insisting on a reasonable rates.
The new window may therefore minimise financial woes for about 40,000 formally registered SMEs (Sh10 to 100 million in capital) with their exposure to credit financing pegged at about Sh50 billion ($583 million) against an estimated demand of Sh250 billion ($3 billion).
