Kenya: Stanbic Bank signs Sh1bn insurance for Small and Medium-sized Enterprise (SME) loans

Stanbic Bank Kenya has signed an agreement with the African Guarantee Fund (AGF) to insure the lender against defaults in loans worth Sh1 billion to small and medium-sized enterprises (SMEs).

The guarantee scheme will be in place for a renewable period of five years and will see the bank provide loans of up to Sh3 million to a single borrower.

Loan guarantee deals, which are becoming more popular in Kenya, seek to encourage banks to lend more to SMEs, which are deemed riskier with the benefit of sharing potential losses with the providers of credit insurance.

“SMEs contribute more than 30% of Kenya’s GDP, and close to 50% of new jobs created annually, and therefore, our partnership with the African Guarantee Fund is a significant milestone in contributing towards accelerating their growth,” said Florence Wanja, the head of commercial clients at Stanbic.

The loans will be issued to SMEs, women-owned businesses, and firms in the energy sector. The guarantee will be available as Stanbic issues the loans and it will be capped at an aggregate of Sh1 billion.

In addition to loans, the partnership will also see clients receive technical capacity building.

“Many Kenyan SMEs struggle to access financing due to their perceived higher risk, which has further deteriorated during the Covid-19 pandemic,” said Frank Adjagba, the director of business development at AGF.

“Reducing this risk will help these businesses access financing required for growth.”

AGF charges banks a fee of between 1.5% to 3% for the risk guarantee.

Lending to SMEs has traditionally been seen as presenting more risk of default compared to lending to large, established private firms and government-owned institutions.

This has seen some banks opt to insure some or all of their SME loan portfolios. Recent disclosures have, however, shown that large firms are now the main source of growth in defaults in the banking sector.

AGF says it has so far unlocked financing worth $200 million (Sh23 billion) in Kenya, benefitting more than 4,000 businesses.

The fund announced in 2019 that it was ready to provide guarantees of $170 million (Sh19.3 billion) to Kenyan banks to support their lending to SMEs.