MOMBASA – The government is set to introduce a Credit Guarantee (CG) policy aimed at providing Micro, Small, and Medium Enterprises (MSMEs) with better access to affordable credit facilities. This initiative builds on a Credit Guarantee Scheme launched in 2020, which has already enabled private sector lending to 4,078 MSMEs, totaling approximately Sh6.18 billion across various economic sectors by December 31, 2023.
According to Kenya News Agency, who spoke at a public participation forum organized by the National Treasury, the policy will tackle prevalent challenges within the MSME sector, including intense competition and the pervasive issue of inadequate security for loan access. The forthcoming policy aims to enhance the sector’s capacity, which is a significant employment driver in the country.
Anthony Njeru of the Ministry of Cooperatives and MSMEs highlighted that the inability of commercial banks to offer loans to MSMEs due to insufficient collateral has been a significant barrier. However, since the inception of the original scheme four years ago, a collaboration with seven commercial banks has facilitated broader financial access. “The policy will support the creation of a CG company to ensure loan guarantees and develop a comprehensive credit guarantee ecosystem,” Njeru explained.
The Economic Survey of 2023 indicates that MSMEs employed 16 million people and were responsible for creating over 700,000 jobs in 2022, representing 86.1 percent of all new jobs. The CG policy will introduce clear operational processes, eligibility criteria for beneficiary enterprises, and conditions for claiming validation to mitigate the risk of default and ease credit access for MSMEs.
Furthermore, the government plans to establish MSME outreach centers to reduce information asymmetry between lenders and businesses, enhance the formalization of MSMEs, and integrate business registration services with financial institutions. Additionally, a new government-backed company or special purpose vehicle with minor government shareholding is proposed to improve the effectiveness of government-linked credit guarantees.
Local residents, including Godfrey Nato from Changamwe, welcomed the initiative, emphasizing the need for secure lending options for MSMEs that lack traditional collateral like log books or title deeds. Public participation advocate Charles Njenga stressed the importance of involving grassroots MSMEs in the policy-making process, while Priscah Odhiambo pointed out the potential benefits for women in small businesses who have been disproportionately affected by predatory lending practices.