Equity Group lines up Ksh.500 billion for MSME support

Lender Equity has set its sights on disbursing Ksh.500 billion in new loans to micro, small and medium enterprises (MSMEs) across the next five years.

The bank is expected to deploy a multi-pronged strategy including long-term funds from its international partners, credit guarantees and monies from its own balance sheet.

Already, the lender has tapped Ksh.52.3 billion in off-balance sheet financing to include Ksh.8.3 billion in guarantees from the African Guarantee Fund and Ksh.16.5 billion from entities in the European Union (EU).

“Out of every Ksh.1 billion on funding mobilized for lending, Equity will match every equivalent shilling with Ksh.10. As such, in the next five years, we will have rolled out Ksh.500 billion to ensure we sustain the stimulus to the economy,” said Equity Group Managing Director James Mwangi.

In addition to new loan disbursements, the facility is expected to prolong repayments on outstanding credit facilities by up to three years while protecting Equity’s balance sheet and profitability.

According to Dr. Mwangi, the Group is leveraging its shear size with a balance sheet greater than Ksh.1 trillion to anchor private sector credit growth, which it sees as a key pillar to a post COVID-19 economic rebound, while mitigating risks associated with MSE lending.

“Equity has now grown to a size where it can afford to use complex, sophisticated tools like guarantees. This is part of our mechanism to reduce on-balance sheet lending instruments to trade finance,” added Dr. Mwangi.

Part of the bank’s off-balance sheet financing for instance is covered in foreign currency to cover foreign currency denominated loans.

The new facility which expects a further disbursement of Ksh.16.5 billion in long-term funding has been supported by institutions such as the MasterCard Foundation which has made available Ksh.10 billion for capacity building and business service development.

So far, the bank reports the partnership which include loan guarantees has supported the training of 2.3 million youths and the creation of 350,000 jobs across 2020.

During the past year, Equity says it offered to restructure about 45 per cent of loans in distressed sectors such as tourism and hospitality.

Nevertheless, 10 per cent of the bank’s clients in the distressed segment maintained loan repayments as scheduled while more borrowers has resumed to original payment plans.

According to Dr. Mwangi, the interest rate cap regime which ended in November 2019 and the COVID-19 have acted as the greatest deflectors to GDP growth in recent years.

On his part, African Guarantee Fund (AGF) Group Chief Executive Officer Jules Ngankam says the creation of credit guarantee schemes will be of essence to driving up funding to MSMEs.

“One of the challenges we are facing in Africa is the lack of risk-sharing instruments, it’s not a money issue. Banks are obligated to carry any loans to SMEs for their entire life and hence a need for hedging and de-risking,” he said.