Tuesday, Aug 4, 2020
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SMEs to partly benefit from state-backed credit guarantee scheme

SMEs to partly benefit from state-backed credit guarantee scheme

By Daisy Okanga | The National Treasury will not fully guarantee loans given to Small and Medium Enterprises (SMEs) under the State-backed Credit Guarantee Scheme if a proposed law sail through in Parliament.

During the 2020/2021 budget presentation by Treasury Cabinet Secretary Ukur Yatani the government allocated Sh3 billion seed capital to operationalize the SME Credit Guarantee Scheme, more than a year after it was formed.

“A guarantee for credit extended to micro, small or medium enterprises shall be given under a scheme established by the Cabinet Secretary for the partial mitigation of default risks for credit extended to micro, small or medium enterprises.” Reads part of the Public Finance Management (Amendment)  2 Bill, 2020.

This means that a small business must provide collateral for the loans that include assets like machinery and other property.

The proposed law further gives powers to Treasury Secretary to set out the conditions for the guarantee of the loans and the size of losses that the State will absorb in case of a default.

While presenting Kenya’s Sh2.79 trillion budget for the financial year 2020/2021, CS Yatani said the scheme will enable the provision of affordable credit to small and medium enterprises in an efficient and structured manner.

According to the Bill, the Treasury will only take a portion of the losses in case an SME defaults on payment of the loans.

The bill further stated that A guarantee for credit extended to a micro, small or medium enterprises shall be given under a scheme established by the Cabinet Secretary for the partial mitigation of default risks for credit extended to micro, small or medium enterprises.

The MPs are set to debate and approve the proposed law, which among others, stipulates that targeted SMEs must have an annual turnover of not more than Sh100 million and a workforce of between 51 and 250 workers.

The European Union has already committed €100 million (Sh11.7 billion), boosting the State-backed credit guarantee scheme.

SMEs should take heed of the Government turning its attention to tackling corporate debt caused by COVID-19 and act now to protect themselves against unpaid invoices.

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