The government's Credit Guarantee Scheme (CGS) had disbursed over Sh3.3 billion to 2,490 enterprises as of June this year, new data shows.
This is against the total value of repaid facilities of Sh407 million, according to the latest financial report from the National Treasury. The scheme was created to ease credit access to micro, small and medium enterprises (MSMEs) in the wake of the Covid-19 pandemic.
"During the 2021/2022 financial year, approximately Sh3.3 billion has been disbursed to 2,190 MSMEs under the CGS," explained the report.
"This disbursement represents a credit guarantee value of Sh830 million given for credit advanced to eligible MSMEs in the financial year."
The CGS is meant to alleviate the challenges faced by MSMEs seeking credit by offsetting situations in which borrowers with an equal probability of default have an unequal probability of obtaining credit due to insufficient collateral.
Seven banks - Absa Bank, Credit Bank, Diamond Trust Bank, KCB Bank, NCBA Bank, Stanbic Bank and Co-operative Bank of Kenya - are currently the participating financial institutions that provide credit to qualifying MSMEs.
As an incentive to the banks, the CGS guarantees to pay 50 per cent of the outstanding principal amount, subject to a maximum of 25 per cent of the principal amount in case of default on qualifying credit facilities advanced to MSMEs.
The maximum loan amount under the Scheme is Sh5 million with a tenor of three years and up to five months grace period, and the discounted interest rate is based on the MSMEs risk profile.
In the 2021/2022 financial year, Nairobi County took the lion's share of the loans issued, receiving 47 per cent of the number of facilities and 58 per cent of the loan value. "CGS recorded beneficiaries in 43 counties with a high concentration in Nairobi (1,033), Kiambu (157), Mombasa (123 and Nakuru (84)," says the report.
"This could be explained by the concentration of MSMEs in urban centres and PFIs (private finance initiatives) branches across counties, implying high demand of credit in these regions."
Mandera County is yet to record any beneficiaries under the CGS, while in 14 other counties, including Kitui, Kakamega, Bomet, Nyandarua, Isiolo, Narok and Lamu, there were less than eight entities that obtained funding.
Of the 2,190 facilities issued under the CGS in the 2021/2022 financial year, small enterprises received 1,361, medium enterprises 268 and micro-enterprises 561. "In terms of the value of facilities, small enterprises received Sh2.2 billion, medium enterprises received Sh592 million while micro-enterprises received Sh431 million," says the report. The trade sector received the bulk (75.9 per cent) of the facilities issued last year followed by transport and communication (6.39 per cent), building and construction (3.53 per cent), manufacturing (2.54 per cent) and tourism, restaurant and hotels (2.2 per cent).
Legal distinctions
Micro-enterprises received smaller loans on average compared to small and medium enterprises. The National Treasury says the scheme is working on developing clear legal distinctions between the different criteria of enterprises.
"The scheme is consulting relevant government institutions on the application of this legal definition, noting that if the definition was administered in the strict sense, it would lock out many MSMEs," notes the report.
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"In the meantime, the National Treasury is considering a policy direction, which requires the annual turnover to prevail as the measure of enterprise size for purposes of reporting on CGS."
As of June 30, 2022, the credit guarantee scheme had 2,215 active facilities with a total outstanding principal amount of Sh2.9 billion.
A total of 2,084 facilities were classified as "normal," while 131 facilities were "delinquent," that is, classified as "watch," "substandard" or "doubtful."
According to Treasury, the 131 delinquent facilities together represent an outstanding principal amount of Sh158.9 million and potential claims up to a maximum of Sh45.3 million.
Treasury says utilisation of credit guarantees as of June 30, 2022 stood at 35.9 per cent and had started to stagnate towards the end of the financial year. Key challenges that hamper the absorption of the fund include a lack of awareness among eligible firms and the informality of the MSME sector.
"Most MSMEs are informal, not tax compliant and are unregistered by the relevant government agency as required by Regulation 10 of the CGS Regulations," says the report.