KBA to launch “Inuka SME” program for building capacity for SMEs

The Kenya Bankers Association (KBA)  will soon be launching the “Inuka SME” program to help build capacity for the micro, small and medium sized businesses.

Maina Kihara, I&M Bank CEO revealed this during this year’s first  online chat session dubbed “My Chat with a Bank CEO” on how the bankers association is tackling their ability to service the SME sector within the current environment.

“Banks are also actively engaging with insurance service providers, including Government, to derisk the SME sector. Also, banks are looking to set aside a portion of their portfolio to this sector,” said Kihara.

He also emphasised that the SME sector needs to find ways in which they are ‘less risky in their business’ through insurance and having better financial records.

“It would mean that banks would be willing to take on more risks within their SME portfolios. The price however, at which we do that has to reflect the risk that we are taking. And that’s why the interest rate capping has adversely impacted SME access to credit,” he noted.

According to the credit survey report released by the Central Bank, more than half of Kenyan banks are no longer advancing loans to SMEs. The report showed that 54 per cent of the 42 financial institutions reduced their lending to the MSMEs in the period under review.

“Interest rate capping has compelled banks to increase their risk mitigation measures. As a result, this has locked out potential customers below certain risk thresholds on existing products standards,” the report reads in part.

It also showed that only 10 per cent of the financial institutions increased credit issuance as a result of the interest rate capping which came into effect on September 14, 2016.

The survey indicated that 98 per cent of the financial institutions held their interest rates constant, with only 2 per cent decreasing their interest rates.

However,on the rate capping, Kihara says,”What is important to understand about the interest rate capping issue is that banks are not proponents for high interest rates. Indeed, our position is that lower interest rates actually are helpful for economic growth. What’s important is that we get those levels through market forces.”

“Our position is that we should remove the challenges that drive high interest rates. Pricing is driven by competing demand for credit. Lower pricing of loans would allow us to lend more to our customers, but only if we can cover the risks.”