Stanbic Bank signs 1 billion shillings insurance for SME loans

Capital markets

Stanbic Bank signs 1 billion shillings insurance for SME loans


A branch of Stanbic Bank in Mombasa. FILE PHOTO | NMG

Summary

  • The guarantee scheme will be in place for a renewable period of five years and will see the bank provide loans of up to 3 million shillings to a single borrower.
  • Loan guarantee agreements, which are gaining popularity in Kenya, aim to encourage banks to lend more to SMEs.
  • The loans will be made available to SMEs, women-owned businesses and businesses in the energy sector.

Stanbic Bank Kenya #ticker:SBIC has signed an agreement with the African Guarantee Fund (AGF) to insure the lender against default on loans worth Sh1 billion to small and medium enterprises (SMEs).

The guarantee scheme will be in place for a renewable period of five years and will see the bank provide loans of up to 3 million shillings to a single borrower.

Loan guarantee agreements, which are gaining popularity in Kenya, aim to encourage banks to lend more to SMEs, which are deemed riskier, with the benefit of sharing potential losses with credit insurance providers.

“SMEs contribute over 30% of Kenya’s GDP and nearly 50% of new jobs created each year, and therefore our partnership with the African Guarantee Fund is an important step in contributing to accelerating their growth,” said Florence Wanja, Stanbic’s Head of Commercial Clients.

The loans will be made available to SMEs, women-owned businesses and businesses in the energy sector. The guarantee will be available as Stanbic issues the loans and will be capped at a total of 1 billion shillings.

In addition to loans, the partnership will also enable clients to benefit from technical capacity building.

“Many Kenyan SMEs are struggling to access finance due to their perceived higher risk, which has further deteriorated during the Covid-19 pandemic,” said Frank Adjagba, business development director at AGF.

“Reducing this risk will help these businesses access the financing they need to grow.”

AGF charges the banks a commission of between 1.5% and 3% for the risk guarantee.

Loans to SMEs are traditionally considered to have a higher risk of default than loans to large, established private companies and public institutions.

This is why some banks have chosen to insure all or part of their SME loan portfolios. Recent revelations, however, have shown that large corporations are now the main source of growth in defaults in the banking sector.

AGF says it has so far unlocked funding worth $200 million (23 billion shillings) in Kenya, benefiting more than 4,000 businesses.

The fund announced in 2019 that it was ready to provide guarantees of $170 million (19.3 billion shillings) to Kenyan banks to support their loans to SMEs.

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