Treasury unveils SME credit guarantee program

The National Treasury has unveiled the long awaited small and medium enterprises (SME) credit guarantee scheme signalling relief for struggling small-businesses in the country.

The scheme, a collaboration between government and local financial institutions is expected to see the State insure part of risks undertaken by commercial banks in advancing loans to commercial banks.

In essence, the credit guarantee scheme will act as cover for credit default risks by local enterprises and will allow banks to lend to SMEs by taking comfort in the partial guarantee on offer.

“With reduced turnover and disruptions in the market and supply chains, many MSMEs were, and still are, unlikely to attract affordable and quality credit under the traditional arrangements. Interventions are therefore necessary to cushion the impact of COVID-19 on MSMEs,” said Treasury Cabinet Secretary Ukur Yatani.

“This is in line with best practice in other regions where credit guarantee schemes have been used successfully to improve access to credit by MSMEs.”

Under the 2020/21 budget, the National Treasury has made available Ksh.3 billion as seed capital for the creation of the SME scheme with additional financing which presently stands in excess of Ksh.20 billion coming from partner financial institutions and development partners.

The planning ministry total commitment to the fund stand at Ksh.10 billion over the next three financial years.

The operation of the scheme is guided by the Public Finance (Ammendment) (No.2) Bill, 2020 which hands power to the Cabinet Secretary of the National Treasury to oversight the fund’s day to day operations.

For instance, the Treasury CS is expected to approve all State guarantees under the scheme while the minister shall additionally hold powers to set conditions for accessing guarantees

Additionally, the Cabinet Secretary will be tasked with furnishing Parliament with a summary and statement of all guarantees granted under the scheme atleast once very year.

Enterprises who fall under the SME definition as given under the Micro and Small Enterprises Act of 2012 stand to qualify for the guarantees.

A micro enterprise for instance refers to an entity employing less than 10 people and whose turnover does not exceed Ksh.500,000 annually.

Meanwhile, firms accessing the guarantees are capped under the definition of medium enterprises which refers to businesses employing between 50 and 250 persons and a turnover not exceeding Ksh.150 million.