Treasury lends Sh600m in soft loans to four microfinanciers

Four microfinance institutions have received a Sh600 million loan injection from the Treasury for on-lending to small businesses, mainly in the agricultural sector.

The loan is under the micro, small and medium enterprises (MSME) programme through which cash is advanced at concessionary rates to deposit-taking micro-finance institutions (DTMs).

The four DTMs will be expected to repay the loans to the Treasury over 10 years at a rate of five per cent annually.

“It is expected that this facility will enable the DTMs to reach more than 135,000 Kenyans over the next four years, increase productivity and efficiency in food production, thus addressing the challenge of insecurity,” said the permanent secretary in the Ministry of Finance, Joseph Kinyua, during Tuesday’s signing ceremony. The DTMs will be expected to on-lend the cash at a rate based on their own assessment of risk of their individual clients.

Mr Kinyua said the Treasury had not fixed the rate at which individuals and MSMEs would be lent the cash because “it did not want to distort the loans market.”

High rates

“We have not fixed the rate at which the DTMs will lend the money, but we don’t expect that they will lend at high rates of 20 per cent or above. In any case, we want to see affordable interest rates that spur investment,” said Mr Kinyau.

The average market lending rates currently cluster below 20 per cent.

The DTMs set to benefit from the loans include Faulu Kenya, Kenya Women’s Finance Trust, Rafiki and SMEP. SMEP, owned by the National Council of the Churches of Kenya, recently sought additional capital of Sh1.6 billion through a share offer to church-linked institutions and individuals.

KWFT is to get Sh205 million, Faulu Kenya gets Sh200 million, SMEP was offered Sh100 million while Rafiki gets Sh95 million.

The DTMs were selected on the basis of a competitive tender floated by the Treasury for the cash earmarked to support MSMEs in the Budget.

The criteria used in choosing them were, among others, extent of rural network and ability to use technology to reach remote areas.

They are participating in Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT) credit facility extended to Kenya by the International Fund for Agricultural Development (Ifad).

PROFIT’s aim is to reduce poverty in poor and rural households through sustainable financial services.

Mr Kinyua said the credit facility is intended to address the short-term capital constraints of DTMs to enable them to deepen their rural outreach, facilitate expansion of a range of financial services and encourage the use of innovative financial products and technologies.

He said the programme has a national coverage, but specifically designed to reach rural areas of Kenya.

Special focus is being given to areas with agricultural potential, areas of high poverty incidence and the arid and the semi-arid region.