The National Treasury led by Cabinet Secretary Njuguna Ndung'u has announced a plan to fully introduce and implement the Credit Guarantee Policy.
Through this, Kenyans in Micro Small and Medium Enterprises (MSMEs) will have an easier time accessing loans from different lenders.
According to CS, the lack of these guarantors blocks countless business owners from accessing loans which would boost their businesses.
He noted that other countries have such policies which have contributed to economic growth and the growth in MSMEs. Ndung'u revealed that some lenders see MSMEs as high-risk borrowers and therefore tend to deny them loans.
"Governments, development agencies or private sector organizations provide guarantees to financial intermediaries that, if borrowers default, the guarantors will reimburse an agreed percentage of the unpaid loan to the lenders. By transferring part of the credit risk from the lender to the guarantor through a risk mitigation mechanism, credit guarantee encourages and enables financial intermediaries to lend to MSMEs," he stated.
Ndung'u emphasised that MSMEs face an array of challenges which stunt their growth. This coupled with a lack of funding resulted in delayed payments for supplies.
The CS further explained that when implemented Credit Guarantors will need to be registered as per the Companies Act and anyone who operates without a license risks a Ksh1 million fine or a three-year sentence or both.
He also revealed that Kenya had established a Credit Guarantee Scheme in 2020 but this pilot is not suitable since it operates as a unit under the National Treasury and relies on annual budgetary allocation from the exchequer.
While elaborating the policy, Treasury Principal Secretary Chris Kiptoo emphasised that it will fill an existing gap adding that MSMEs are largely unserved by lenders because of their size and informality.
"Credit guarantee facilities aim to address a situation in which a borrower would ordinarily be perceived as risky due to insufficient collateral.is facilitated to access credit through partial coverage of their default risk by a guarantor."
"One of the main attractions of the credit guarantees is that they could encourage financial intermediaries to channel more funds to MSMEs than they would normally have done without such guarantee," he added.
This introduction will result in amendments to the Central Bank of Kenya Act. These Credit Guarantees will also be specific depending on the sector.
If the amendments are approved, CBK will regulate and supervise these companies to avoid money laundering and combat the financing of terrorism and counter-proliferation financing purposes.
CBK will also issue and revoke licenses for the companies, prescribe minimum liquidity requirements, and impose monetary, civil or administrative sanctions among other roles.
