The Credit Guarantee Scheme

Micro, Small and Medium-sized Enterprises remain the principal engine behind Kenya’s economic growth. According to the Kenya National Bureau of Statistics (KNBS), more than 7.4 million MSMEs in the country provide employment to approximately 14.9 million Kenyans in various sectors. However, with the adverse impact of the COVID-19 Pandemic on the SME sector, coupled with pre-existing barriers, the sector faces an acute challenge in its ability to access affordable credit to sustain its operations. To address this, the National Treasury together with Central Bank of Kenya, Office of the President – SME Advisory Unit, Ministry of Trade, Kenya Bankers Association, Association of Micro Finance Institutions, donors and other stakeholders spearheaded the development of a Credit Guarantee Scheme (CGS) to promote enterprise growth by enabling access to quality and affordable credit. For the first phase of the program, the National Treasury has partnered with seven banks to implement the Scheme as a COVID response facility. With a view to dispelling any misconceptions and creating awareness about the CGS, KBA Secretariat has developed these Frequently Asked Questions (FAQs) page.

  • A Credit Guarantee Scheme (CGS) is an arrangement designed to reduce risk associated with lending to MSMEs.
  • CGS is similar to an insurance policy that gives lenders confidence to extend credit to potentially high-risk borrowers.
  • There are costs and risks associated with deploying credit under a CGS, therefore, banks will employ all the necessary precautions before extending the credit to the borrower.

Banks are now able to disburse affordable loans faster, lend more and take on more riskier SME borrowers. Benefits of the CGS to the borrower include:

  • Attractive repayment periods.
  • Lower loan security requirements i.e. easier collateral requirements.
  • Ability to lend to more MSMEs, who were previously considered risky
  • A bank loan is a contractual debt obligation. Typically, where a loan is guaranteed, the guarantor (or third party) is charged with the responsibility of paying the lender in the event of a default by the borrower.
  • Therefore, this program is not a grant facility, the capital (money) that MSMEs will access through the banks will need to be repaid according to bank terms and conditions and in line with the gazetted CGS regulations. As such, there are penalties for loan default under this program.
  • Loans under this program are currently available at the following 7 banks: Absa Bank, Co-operative Bank, Credit Bank, DTB, KCB, NCBA and Stanbic Bank. Contact each banks’ Customer Service Department for more information.
  • The loans are not available at any Government office.
  • It is anticipated that in the next phase other financial institutions will be invited to submit proposals to National Treasury so as to participate in the CGS.
  • It is anticipated that in the next phase other financial institutions will be invited to submit proposals to National Treasury so as to participate in the CGS.
  • Every participating bank will provide performance reports to the Administrator at National Treasury, as per the Public Finance Management (Credit Guarantee Scheme) Regulations, 2020. This reporting mechanism is designed to enable accountability and full transparency.

Yes, there are consequences for failure to repay the loan and for loan fraud.As stipulated in the Public Finance Management (Credit Guarantee Scheme)Regulations 2020, borrowers face prosecution of up to two years should they fail to do the following:

  • Wilfully apply the funds borrowed under the guaranteed credit facility to any purpose other than the purpose for which the credit was approved;
  • After securing the loan under the guaranteed credit facility, knowingly destroy or misappropriate any security given;
  • Knowingly give false information; or
  • Wilfully destroy any assets used as collateral by a participating financial intermediary.
  • It is a little-known fact that commercial banks in Kenya lead in Africa when it comes to financing the MSME sector. On any given day, you can find a bank supporting MSMEs and entrepreneur clients through capacity building and technical assistance programs, which help clients run more successful businesses.
  • Banks are enthusiastic about supporting the MSME sector through this CGS -- in line with the industry's Inuka SME program that is aligned to Kenya Vision 2030 and the Sustainable Development Goals.
  • Moreover, between 2016 and 2018, Banks invested more than Kes. 6.7 Billion through corporate social investment, including programs promoting enterprise development.
  • You can read more about the Banking Industry’s Shared Value report by visiting www.kba.co.ke or clicking this link.