Bank room at the headquarters of the Postal Bank. [Wilberforce Okwiri, Standard]

Major lenders – including Equity, KCB and Cooperative Bank of Kenya – have borrowed billions of shillings to support smaller entities in the wake of the Covid-19 disruptions.

Now these banks face the testing of their promises in the new year, with Equity continuing the trend with a $ 165 million (18.6 billion shillings) loan for the Kenyan unit. .

Some of the money will be used to lend to micro, small and medium enterprises (MSMEs) and will be in addition to the billions of shillings the lender has used as long-term loans since the Covid-19 strike at the start of 2020.

Long-term equity borrowing, for example, jumped 46.59 billion shillings between the start of the pandemic in March 2020 and the end of September last year to reach 99.18 billion shillings, the lender. committing to support MSMEs.

The KCB Group has also moved in the same direction, tapping into long-term loans from lenders such as the International Finance Corporation (IFC).

Where the banks get the money

Local banks are increasingly taking loans from global funds, such as the IFC, the European Investment Bank (EIB) and the French Development Agency (AFD).

Funds borrowed by KCB have increased from 21.96 billion shillings at the end of March 2020 to 35.27 billion shillings last September, with a focus on MSMEs seeking to recover from the Covid-19 disruptions.

Group CEO Joshua Oigara said the lender has launched an ambitious SME project and estimates the bank will more than double SME loans from 50 billion to 60 billion shillings this year.

“We know the SMEs we are dealing with and we have the opportunity to increase the size of the portfolio,” Oigara said.

“It’s about finding short-term lines of credit that allow them to meet cash flow needs and also increase their credit limits. ”

Oigara has also increased loan approval limits at branch level to support SMEs. Where the lender had limits of 1 million shillings, Oigara says 3 million shillings is now a possibility.

However, as banks take these steps to increase lending to small businesses, a mismatch exists between the portfolio of SMEs and the billions raised to lend to these entities.

This is an issue Oigara wants KCB to overcome this year and reduce the time between application and approval from 14 days to seven days.

“The 2020 (Covid-19) crisis, in particular, has created a certain delay. But there is more than just a loan. We do training and capacity building to create a business network, ”he said.

No more high risk

Banks are eager to familiarize themselves with SMEs operating in sectors of activity traditionally “blacklisted” due to high risks.

This is done by imposing requirements such as proper records and documentation that can help banks rely on historical trends to make risk forecasts.

Cooperative Bank, which launched a proposal for MSMEs in 2018, has improved the training of these entities in all countries to prepare them for success when applying for loans.

Over 139,000 MSMEs have been incorporated into the three Co-op packages – gold, silver and bronze – which are bands designed according to the revenue of the entities.

The lender reveals that as of September last year, it had trained 14,665 MSME clients, organized 181 non-financial services clinics, thirteen networking forums and three international business trips to support microenterprises.

“We also support our clients in the MSME segment by seeking funds from our long-term funding partners who would facilitate their funding,” the lender said.

The funds borrowed by the lender reached 43.8 billion shillings last September, an increase of 67.6% from 26.2 billion shillings in September 2020.

The amount came from lenders such as IFC (8.25 billion shillings) with Co-op closing in September with a portfolio of MSME loans of 15.32 billion shillings or five percent of the total loan portfolio.

CBK data shows that there were 915,115 active MSME loan accounts in the banking sector as of December 2020, with a total value of 638.3 billion shillings.

Profitable SME loans for banks

MSME loans generated 70.8 billion shillings for the banking sector in 2020, or 12.2 percent of the total income generated by banking sector loans.

Stanbic Bank Kenya revealed in early December that it had supported at least 21,000 SMEs through its various programs and was looking to expand this in the current year.

Collins Wanyonyi, head of direct banking, enterprises and commercial clients at Stanbic, said KCB has deployed digital lending to help SMEs access loans much faster.

The digital loan, he says, is transaction-based and targets amounts of up to 3 million shillings payable between 45 days and 18 months depending on his account history.

“This automated review reduced the review period to one hour and the loan withdrawal to same day, making the process more efficient while helping clients with the conduct of their account,” Mr. Wanyonyi said. .

The lender also introduced SME Resilience, a 10-module training course that covers areas that the bank considers critical to the success of an SME and aims to address the risk of default.

This will improve access to unsecured loans of up to 3 million shillings for working capital and 10 million shillings for trade finance solutions, thereby removing the collateral barrier faced by many SMEs.

The growing attention of banks towards MSMEs follows a joint investigation by the Kenya National Bureau of Statistics (KNBS), the Central Bank of Kenya (CBK) and the Financial Sector Deepening Trust (FSD) Kenya showing that micro- entities are still in trouble.

Big hole to fill

The struggles highlight the big hole banks will need to fill in 2022 if MSME fortunes are to improve as disruptions from the Covid-19 pandemic abate.

At the end of July last year, 38% of micro-businesses said they had experienced a recovery, with average incomes at or above pre-pandemic levels, according to the survey.

However, a majority (62%) of MSMEs still earn less than their pre-pandemic income.

The survey indicates that business closures have increased, with 35% of business owners who had businesses in the pre-pandemic era no longer involved in any business activity by July 2021.

“Business closures increased in 2021, with 35% of business owners who had businesses before Covid-19 no longer involved in any business activity as of July 2021,” the survey says.

Such an environment presents an opportunity for lenders to step in and support small businesses on their recovery journey.

In July, only 32% of MSMEs reported having savings, up from 60% in February 2020 just before the Covid-19 disruptions took hold.

According to the survey, food insecurity remained high, with 47% of MSME households missing meals in July 2021 compared to 14% in February 2020.

But with MSMEs striving for a better 2022, the focus will also be on banks on how they respond to the state directive that froze the negative list of defaulting MSMEs below 5 million shillings until ‘at the end of September.

Deployment of the directive will leave banks with no tool to differentiate between good borrowers and defaulters, according to the CBK.

This situation, the Central Bank warned, could prompt banks to turn off the credit taps, which is likely to hurt MSMEs seeking loans to recover from the economic downturn induced by the coronavirus.

Another headache could be the delay in the CBK’s approval of loan pricing models intended to allow banks to price risk after the removal of cap rates in November 2019.

Banks’ credit pricing models require CBK approval, and banks must justify charging higher rates to customers with higher credit risks, according to the latest disclosures from the International Monetary Fund.

Kenya Bankers Association CEO Habil Olaka said securing such approvals would help boost banks’ quest to serve clients and small businesses alike.

“The banks have become very entrenched to support these sectors of the economy. If all banks can ensure that their risk-based pricing models get the necessary approvals from the CBK as soon as possible, then we will have the risk for them to price appropriately and therefore will lend to those specific segments and will stimulate economic recovery, ”said Olaka.