Funds for small enterprises on the increase

Above : Plutarchos Sakellaris Vice President of European Investment Bank (left) and Co-op Bank CEO Gideon Muriuki during the micro businesses fundsagreement signing ceremony.

If you are a small and medium enterprise or a start-up, the European Investment Bank (EIB) has some good news. It has earmarked some Ksh 10 billion for long-term financing of micro businesses in Kenya.

This brings to total, Ksh 20 billion from development partners this year, a clear indication that SMEs are increasingly becoming major drivers of economic development. The EIB funds come close to a month after leading micro lender Equity Bank received Ksh 8 billion from the International Finance Corporation, and three months after the German Development Bank (KfW) loaned the same institution Ksh 2 billion.

The EIB funds will be disbursed through the Cooperative Bank of Kenya, Faulu and Housing Finance. Co-operative Bank will receive the bulk of the cash, a total of  Ksh 7.6 billion and the balance to the other two.

Plutarchos Sakellaris, EIB’s vice president for Africa, said that the money would help improve access to affordable finance, the most glaring huddle to development of SMEs. A third Kenyan bank is expected to join this facility shorty, probably in a couple of months,  said Mr Sakellaris, adding that it was important that small private sector firms which provide the bulk of the jobs in the economy be assisted to expand or start up.

Lenders will access the funds through the Private Enterprise Finance Facility III (PEFF III) and East African Community (EAC) Microfinance Facility. Co-op Bank, will tap  Ksh 5.4 billion (50 million euro) under the PEFF III and  Ksh 2.2 billion (20 million euro) under the EAC Microfinance facility.

Housing Finance will access up to  Ksh 2.2 billion (euro 20 million) under the PEFF III facility while Faulu Kenya will tap up to  Ksh 432 million (euro 4 million) under the EAC Microfinance Facility.

Mr Sakellaris said that funds obtained under the PEFF III facility will be offered small and medium-sized enterprises (SMEs) seeking to borrow between  Ksh 1.1 million (euro 10,000) and  Ksh 378 million (euro 3.5 million).

“This scheme will provide long-term funding in Kenya shillings, US dollars and euros to assist lending to local businesses needing to expand or invest in new activities,” he said, adding that funds under both funds come with technical assistance to help the borrowers improve their management skills.

Mr Sakellaris said the funds accessible under the EAC Microfinance facility will be available to micro enterprises seeking to borrow up to Ksh 540,000 and was targeted to benefit 4,000 micro businesses.

Early this year ABC and Consolidated Banks signed agreements with EIB allowing them to access Sh770 million and Sh715 million with a re-payment period of up to 10 years.

“There may be need to top up those funds because between me and my colleagues we will exhaust them very soon,” said Co-op Bank’s group managing director Gideon Muriuki.

Ken Wathome, the chairman at Faulu Kenya said that the funding will reduce the cost of credit to Faulu Kenya’s customers and help the deposit-taking microfinance institution reach more customers.

Housing Finance managing director Frank Ireri said that the funds would help small and medium-sized businesses mainly in the property development sector adding that the ultimate goal was to bring overall property prices down.

A new African Development Bank report released at the end of last month showed that commercial banks in Kenya, Uganda, Tanzania and Zambia have warmed to lending to SME’s but the informal nature of their businesses attracts stiff collateral requirements.