This archive report was first published on 24 August 2020.
On August 24, 2020, the Treasury introduced a new regulation to curb misuse of State-backed loans by small and medium enterprises (SMEs).
The Public Finance Management (Credit Guarantee Scheme) Regulations, 2020, impose a fine of up to Sh5 million on SMEs that provide false information to obtain loans or use the credit for purposes not disclosed in the applications.
Additionally, SMEs that destroy property like offices and machinery used as collateral for the loans risk the hefty fines.
Under the new regulations, directors, general managers, secretaries, and other top officials of SMEs that breach the law will face up to two years in jail.
The penalties aim to reduce risk exposure as the Treasury seeks to curb huge losses under the Credit Guarantee Scheme, which will provide third-party credit risk mitigation for commercial loans.
According to Treasury Secretary Ukur Yatani, a person who willfully applies any proceeds of a guaranteed credit facility to any purpose other than the purpose for which the credit was approved, knowingly gives false information, or wilfully destroys any asset used as a collateral by a financial intermediary commits an offence and is liable on conviction to a fine not exceeding five million shillings or to imprisonment for a term not exceeding two years or to both.
The State will also seize and auction goods of SMEs that default on bank loans in a raft of stringent measures meant to cut losses.
