This archive report was first published on 3 July 2020.
Kenya's small businesses are facing a tough test as the Treasury sets strict conditions for State-backed credit guarantees to help them recover from the Covid-19 pandemic.
According to the Draft Public Finance Management Amendment Bill 2020, only micro, small and medium enterprises (MSMEs) with a maximum annual turnover of Sh100 million and 250 employees will qualify for loans guaranteed by the government.
The proposed law also grants powers to the Treasury Cabinet Secretary to effect periodic reviews of the asset and investment limits for small businesses that would qualify for the loan guarantee scheme.
“The object of the Bill is to amend the Public Finance Management Act, 2012, in order to provide for guarantees by the Cabinet Secretary for loans advanced to micro, small and medium enterprises,” says the draft Bill.
Plans to grant loan guarantees to small businesses have been in the pipeline for two years now, with the Treasury first floating the proposal in May 2018.
Under the proposed scheme, the Treasury would provide third-party credit risk mitigation to commercial banks by absorbing a portion of losses on MSME loans in the event of default.
The Treasury has set aside Sh3 billion as seed capital to kick-start the scheme, which has received a €100 million (Sh11.7 billion) commitment from the European Union.
Kenya's growth slowed down to 4.9 percent in the first quarter of this year from 5.5 percent last year, the slowest pace in eight years, hit by Covid-19.
