The National Treasury is seeking partner banks to implement the Sh2.5 billion ($20 million) rural credit guarantee scheme, which seeks to catalyse funding into agriculture value chains.
The scheme is a Treasury project backed by the International Fund for Agricultural Development (IFAD) whose goal is to support rural and smallholder agriculture sector-led development by improving access to appropriate financial services.
The scheme mimics the existing credit guarantee scheme at the exchequer which has been working to improve access to credit by micro, small and medium enterprises through innovations and partnerships including commercial banks.
The government through the exchequer and IFAD have provided seed funding of Sh2.58 billion ($20 million) into the project via the existing credit guarantee scheme and expect the partnership with financial institutions to lift the total available financing to the target borrowers to Sh10.3 billion ($80 million).
“The Rural Kenya Financial Inclusion Facility (RK-FINFA) is seeking the services of financial intermediaries to participate in the implementation of the Rural Credit Guarantee scheme under the framework of existing credit guarantee scheme (CGs) under the National Treasury,” the exchequer said in an expression of interest (REOI).
Under the framework, financing from the facility is set to de-risk lenders, providing a partial guarantee for reimbursement of defaulted loans during lending to the rural agriculture value chains.
Partner financial institutions are expected to demonstrate experience in lending to agribusiness enterprises including smallholder farmers and rural MSMEs.
The bank partners must also have appropriate financial and non-financial products for smallholder farmers and rural MSMEs, women and the youth and persons with disabilities (PWDs).
The partner banks are also required to have a wider geographic outreach in terms of branch network in target counties, have a specialised unit whose function is lending to the agriculture sector and have prior experience with other guaranteed schemes.
The government has backed credit guarantee schemes to incentivise the deployment of private capital into sectors underserved by credit including agriculture and small and medium enterprises (SMEs).
The current credit guarantee scheme has however registered sluggish growth, disbursing just Sh6.2 billion in three years to December 2023 according to disclosures by the exchequer.
The National Treasury has paused the issuance of loan guarantees to small traders, pending the formation of a new company to administer the fund.
A new entity, dubbed the Kenya Credit Guarantee Scheme Company is expected to replace the current credit guarantee scheme established in December 2020 with the similar objecting of aiding credit access to SMEs from formal financial institutions.
Seven banks had signed up to the original scheme including KCB, NCBA, Co-operative, Absa, DTB, Stanbic and Credit Bank.
