Manufacturers have piled pressure on the National Treasury to raise the loan limit per borrower in a State-backed underwriting scheme to Sh20 million from the current Sh5 million, payable in eight years in a bid to unlock more funding for the cash-strapped sector.
The Kenya Association of Manufacturers (KAM) also recommended that 20 percent of the Credit Guarantee Scheme funds be ring-fenced for small and medium enterprises (SMEs) in the manufacturing sector.
Some 117 micro, small, and medium-sized enterprises (MSMEs) in the manufacturing sector have accessed loans under a State-backed scheme, making up a measly 2.8 percent of the 4,157 beneficiaries as of last October.
“Some of the measures that can be deployed to increase access to finance include… ring-fencing 20 percent of Credit Guarantee Scheme funds specifically for the manufacturing sector and recapitalizing the credit Guarantee scheme to increase the loan amount to at least Sh20 million and term loan repayment up to eight years,” KAM said as part of its priority agenda.
“This is because manufacturing enterprises have a long maturation period, requiring patient capital.”
The small traders spread across 46 counties – excluding Mandera where KCB is the only bank with a branch – had accessed Sh6.35 billion under the scheme which was launched in December 2020 to help businesses access funds at the height of Covid shocks.
Firms in the transport and communications sector account for the largest share of beneficiaries with 267 businesses having gotten funding under the scheme, followed by households (182) and building and construction (175).
The Treasury, which has injected Sh3 billion into the guarantee scheme in the last four years through June 2024, has paused further loan guarantees pending the incorporation of a new company to administer the fund.
The scheme seeks to cover 25 percent of loss incurred by participating lenders in case of defaults, meaning the Treasury expected the Sh3 billion budget to unlock as much as Sh12 billion credit to small traders. The MSMEs are largely perceived to be risky by banks.
The scheme has been shunned by the majority of the 39 commercial banks in the country, with less than a fifth, or seven, of the lenders signing up.
KCB, NCBA, Co-operative, Absa, DTB, Stanbic, and Credit Bank are the only lenders participating in the credit insurance scheme. The lenders have an open hand in pricing the loans based on individual borrower’s risk profile.
“The Government will also convert the Credit Guarantee Scheme into the Kenya Credit Guarantee Scheme Company (KCGSC) to ensure sustainability and develop a Credit Guarantee Policy whose objective is to provide a clear framework for a sustainable model for credit guarantee scheme for MSMEs,” the Treasury wrote in the 2025 Budget Policy Statement.
Incorporation of the proposed company is awaiting cabinet approval, the Director-General for Budget, Fiscal, and Economic Affairs at the Treasury, Albert Mwenda said in January.
The new company is expected to ensure the sustainability of the Sh10 billion credit guarantee scheme for MSMEs.
Treasury says in the latest budget progress report, it expects the firm to be 10 percent operational this current year, rising to 30 percent by June 2026, 80 percent in the year that will follow, and 100 percent by June 2028.
