The Equity Bank will receive Ksh 8. 34 billion from the International Finance Corporation (IFC). The funding will help boost the bank’s lending power to small businesses and expand its regional business. The IFC is a development lender which lends to commercial banks at low rates who in turn give business loans to the end recipients. IFC loan to the small and medium size enterprises (SMEs) is indicative of growth of Kenya’s largest bank in terms of customer numbers. The Ksh 8.3 billion loan package is mainly targeted at the women entrepreneurs and the agricultural sector. However, SMEs and women entrepreneurs can benefit only if the lower rates are passed on by the bank.
Lending to small firms will create jobs as these businesses are expected to be the economic drivers that propel regional trade. The corporation loaned Diamond Trust Bank $25 million for SME lending in a similar period in 2010. In 2011, Kenya Commercial Bank was loaned $105 million for SMEs. Since that period in 2011, an amount of $5million has been injected into Rwanda’s mortgage market for expansion.
The Central Bank of Kenya has increased its base lending rates from 6 percent to 18 percent which resulted in the banks increasing their loan charges to 25 percent. This has made it hard to obtain funds in the banking industry. Since last year, the CBK has increased its rates.
The money is likely to come in installments as opposed to a one-off bulk loan, as a precautionary measure to safeguard the lender. This will also help the IFC to see if the project is successful. Sourcing funds from international lenders helps local banks secure long-term loans at attractive interests, which are not available locally. These lower interest rates are expected to spill over to the businesses where they will be able to get this financing at lower interest rates.
In 2001, The Kenya Commercial Bank kicked off an aggressive expansion. Last year, all its subsidiaries in the region returned a profit in the financial year. In 2009, Equity Bank branched out of Kenyan borders, and spread its operations to Rwanda and South Sudan. The Diamond Trust Bank and Commercial Bank disclosed that they were targeting potential markets.