By CATHERINE RIUNGU
Small and Medium Enterprises with an eye for regional expansion and export markets can now access long-term funding following the launch of a facility by the International Finance Corporation and Equity Bank to avail cheaper foreign exchange credit.
The IFC, the private sector lending arm of the World Bank, has extended a Kshs 8.3 billion ($100 million) loan to Equity Bank for onward lending to SMEs, agricultural projects and women run entrepreneurs in East Africa, with a similar amount waiting to be released in the second tranche.
Equity Bank CEO, James Mwangi, said SMEs have a big appetite for funding, considering that it has already consumed more than $200 million put aside for it from the China Development Bank and the Danish Development Bank among other lenders over the past two years. As a result of SME specific lending, 40 per cent of Equity’s loaning is to this sector.
In January, Equity Bank received a Ksh 2 billion long-term loan from the German Development Bank KFW for SMEs and agriculture lending.
The financing will be available in five East African Community states – Kenya, Uganda, Tanzania, South Sudan and Rwanda, where the bank has branches, the objective being to support small businesses to expand into the region.
Dr Mwangi, who is also the chairman of Kenya’s social and economic development blue print, Vision 2030, said SMEs held the key to the attainment of the regional countries’ development goals, yet a significant barrier to tapping the sector’s potential is lack of affordable long-term credit. “Credit access has been the limiting factor for SMEs to grow their businesses. This facility will not only avail affordable credit, but will also stimulate them to focus on regional export markets and match strategic growth plans with long term funding,” he said.
The loans will attract an interest of between 10 and 12 per cent, way below the current market average of 30 per cent, and borrowers have a maximum repayment period of up to seven years. Both existing and start-ups, depending on growth plans assessment qualify to borrow, since the funds are targeting more to support small businesses and ideas to thrive rather than ability to repay. In addition, borrowers can negotiate with the bank when to pay back. “Borrowers can arrange topay monthly, bi-monthly or quarterly depending on their operations,” Dr Mwangi said. The loans are fashioned to match SMEs long-term growth plans, to support them to move to the next level and eventually into corporates.
Businesses with plans for value addition, especially in agriculture are encouraged to borrow, Dr Mwangi said explaining that this was the only means they can earn increased foreign currency and create employment.
The IFC director for East and Southern Africa, Jean Prosper Philippe said,“small and medium businesses, agribusiness and women entrepreneurs can catalyze growth in African economies, but they face challenges gaining access to finance”. He added that there was a global focus on Africa as an investment destination and this required creation of robust enterprises, especially those with cross-border reach.
He added that IFC’s investment and advisory services have teamed up with nine banks and one microfinance institution in Kenya, to help them sustainably and profitably increase business with small and medium enterprises. “In 2011, IFC has teamed up with banks to provide loans to 18,000 small and medium businesses in Africa,” he said.