SME News

Treasury lends Sh600m in soft loans to four DTMs

The Treasury has given a KSh. 600 million loan injection to four micro-finance institutions for on-lending to small businesses.

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

The four DTMs will be repaying the loans to the Treasury over a period of 10 years at an interest of five per cent per annum.

The permanent secretary in the Ministry of Finance, Joseph Kinyua, said at Tuesday’s signing ceremony that it was hoped that this facility will assist the DTMs to reach out to more than 135,000 Kenyans over the next four years, increase productivity and efficiency in food production and address the challenge of insecurity. It was expected that the DTMs would on-lend the cash at a rate based on their own assessment of the individual’s risk.

Mr. Kinyua said that the Treasury had not fixed the rate at which individuals and MSMEs would be given loans as it did not want to distort the loans market. He said that they had not fixed the rate at which DTMs will lend the money, but it was expected that they wouldn’t lend at high rates of 20 per cent and above and they were interested in affordable rates that would encourage investment. The average market lending rate was, at present, below 20 per cent.

The DTMs which were expected to benefit from the loans are Faulu Kenya, Kenya Women’s Finance Trust, Rafiki, and SMEP. SMEP which is owned by the National Council of the Churches of Kenya recently sought additional capital of KSh. 1.6 billion through a share offer to church-linked institutions and individuals.

KWFT will be getting KSh. 205 million, Faulu Kenya KSh. 200 million, SMEP KSh. 100 million, and Rafiki KSh. 95 million.

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

Some of the norms applied in choosing them were the extent of rural network and the ability to use technology to reach remote areas.

The DTMs are participating in the Programme for Rural Outreach of Financial Innovations and Technologies (PROFIT) which is a 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 that the credit facility was intended to meet the short-term capital needs of DTMs to enable them to further their rural outreach, help extend their range of financial services, and promote the use of innovative financial products and technologies. He added that though the programme had a national coverage it was specifically designed to reach the rural areas of Kenya.

Special focus would be given to areas with agricultural potential, areas with high-poverty incidence, and the arid and semi-arid regions.

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