Lenders earn Sh71b from MSMEs loans

Thursday, July 22nd, 2021 00:00 | By
Cash. PHOTO/Courtesy

Steve Umidha @UmidhaSteve

Loans to micro, small and medium enterprises (MSMEs) generated Sh70.8 billion for the banking industry, representing 12.2 per cent of the total income from lending by the banking industry.

This after lenders restructured a whopping Sh234.7 billion worth of loans as relief measure to cushion MSMEs in 2020 on the Covid-19 shocks.

“A total of 72,559 MSME loan facilities in the banking industry valued at Sh234.7 billion were restructured in 2020 as a measure to reduce the impact of the Covid-19 pandemic on MSME borrowers,” the report says in part.

Of the 915,115 MSMEs loan accounts as at December 2020, some 204,802 accounts valued at Sh98.7 billion were classified as non-performing, says a new report by the Central Bank of Kenya (CBK).

By comparison, the report notes that in 2019, commercial and micro-finance banks restructured a total of 4,348 loan facilities valued at Sh20.6 billion. 

The 2020 Survey Report on MSME Access to credit notes that non-Performing Loans (NPLs) made up 22.0 per cent of total banking industry NPLs as at December 2020, which stood at approximately Sh436 billion.

“This is significantly higher than the NPLs for MSME loans in December 2017 which stood at Sh56.4 billion or 13.6 percent of the overall MSME loan portfolio of 413.9 billion,” says the report.

CBK says that in the 12 months to December 2020, a total of 6,253 MSME loans valued at Sh2.6 billion were written-off, with commercial banks and micro-finance banks writing off Sh2.3 billion and Sh0.29 billion, respectively.

The report notes that banks turned away 28 per cent of small businesses while microfinance institutions declined 96 per cent of loan applications made by them.

“Commercial and micro-finance banks received loan applications from MSMEs worth approximately Sh740 billion, of which Sh546 billion (74 per cent) was approved,” said the CBK.

Default rates soared

This as banks continue to cut loans to the private sector to avoid losses as default rates soared to hit 14.2 per cent of all loans issued.

The SME sector has felt disproportionate negative effects of the Covid-19 pandemic with the ability to win contracts, access credit, mobilise funds, innovation, and remain afloat heavily compromised.

The National Treasury lined up an additional Sh2 billion for the Credit Guarantee Scheme, on top of the Sh10 billion allocated in the 2020/21 to de-risk small businesses. 

In the view of the respondents, the Covid-19 crisis in 2020 had a significant impact on MSMEs’ access to credit. 

Growing cargo business

Speaking during the launch of the Status of Land Governance in Kenya report, he said 51 per cent of respondents still consider corruption a major hinderance in land transactions, rating it as “high”.

More than half of the respondents cited nepotism and favoritism, unmotivated members, and gender imbalance as being rife at the Lands Control Board (LCB).

Further, the survey says 61 per cent of those polled felt that cost of services at public land offices were above their means.

Most respondents admitted they were not aware of the existence of online land search systems, further alluding to the fact that  little has been achieved since the launch of the National Land Information Management System. Known as Ardhi Sasa, the system was launched by President Uhuru Kenyatta in April 2021.

The survey had a sample size of 1.036 respondents and took place in March this year– a month before ArdhiSasa launch – a new system that seeks to digitize land records, streamline land transactions and ownership.

Under the new system, a Kenyan can search for land transactions, transfers and registrations in the comfort of her or his home.

Growing cargo business

At the click of a button, citizens will carry out online transactions, drastically reducing human interactions—a frequent source of fraud and a definite cause of delays and inconveniences.

The system is also expected to eliminate fraud, corruption and manipulation of critical land records as well as long queues at the registries. Further the system is hoped will resolve land problems as it will provide an updated, verified database of land records that are easily and readily available.

Since Independence, land has been an emotive fight for the majority of Kenyans, owing to historical injustices, fraud and the manipulation of land documents at Ardhi House.

The new system is part of the reforms in the lands sector that is hoped will solve such matters.

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