IFC concerned over low uptake of Sh10b Covid-19 loans
CREDIT: World Bank has expressed frustrations over the low number of small and medium enterprises (SMEs) applying for Covid-19 loans.
It extended Sh5 billion to Diamond Trust Bank and a similar amount to Equity Bank in July for onward lending to small businesses.
The funds were part of the Sh100 billion advanced to help Kenya fight Covid-19, protect jobs and support businesses with working and trade-related capital.
However, the uptake of these loans has been minimal because of lack of awareness and tough lending measures from banks.
“World Bank has complained of the low number of Kenyans applying for Covid fund which was approved all the way in May,” Youth Affairs Cabinet Secretary Amina Mohammed said.
The fund was meant to cushion small businesses against shocks caused by the pandemic but most Kenyans have shied away from applying.
According to officials of International Finance Corporation (IFC), a member of the World Bank Group the money is extended to banks and banks decide the terms of lending to the small businesses.
But banks see small businesses as risky, especially during the pandemic. The cost of lending by banks and terms of credit to small businesses has many restrictions that keep entrepreneurs away.
Closed shop
Analysts, however, say the reason could be purely due to Covid-19. “Most of the SMEs have closed shop and some have downsized so they really are not looking for credit because demand is suppressed in some areas,” said Call Street Capital CEO George Bodo.
He said before Covid-19 struck there was a supply problem as banks were not willing to lend due to the rate cap, however when the rate cap was repealed there was a small window before Covid-19 struck.
“However at the moment, things have flipped and we are now dealing with a demand problem, small businesses are not willing to borrow,” Bodo said.
Government data shows more than 80 per cent of Kenyans are employed by small businesses many of which suffered disruptions due to the Covid-19 lockdowns.
