Assessing What Works for Women’s Economic Empowerment (WEE) in the Implementation of Kenya’s Credit Guarantee Scheme

Abstract

Kenya’s Credit Guarantee Scheme (CGS) was established as part of the presidential economic stimulus package in response to the impact of the COVID-19 pandemic on medium, small and micro enterprises. In order to contain the pandemic, the government put in place measures such as the closure of public spaces and restriction of movement. These measures had long term and adverse consequences for many businesses. Enterprises such as hotels, restaurants and private schools lost most of their business and had to lay off staff and some even shut down.

The cost of essential services, such as transport also increased significantly, thus affecting enterprises that rely on these services. Thus, even retail businesses use transport services to move their goods from one point to another were significantly affected. Other measures such as the dusk to dawn curfew also affected many businesses, particularly those in the informal sector which tend to operate on flexible working hours.

In order to cushion MSMEs and to support their recovery, the CGS was established and anchored in law under the Public Finance Management (Amendment) Act (2020). This Act amends the principal Act, which is the Public Finance Management Act (2012), in order to provide for the establishment of the Credit Guarantee Scheme and to vest the National Treasury with the mandate of implementing the scheme. This amendment came into force in August 2020, and thereafter, the National Treasury passed the Public Finance Management (Credit Guarantee Scheme) Regulations, to operationalize the scheme. In December 2020, the Cabinet Secretary for the National Treasury announced an allocation Kshs. 2 billion to this scheme.

In the 2021 national budget, a further Kshs. 1 billion was allocated the scheme. Seven mainstream banks, including ABSA, Diamond Trust Bank, Co-operative bank, Credit Bank, Stanbic Bank, NCBA and Kenya Commercial Bank were then mandated to roll out loans under the scheme. The CGS allows banks to issue loans that are backed with the government guarantee, so that if borrowers default on repayment, the government covers up to 25% of the initial loan principal amount.

The Credit Guarantee Scheme provides an opportunity for MSMEs to access credit at a subsidized collateral percentage. Collateral is one of the main challenges for MSMEs in accessing finance. The shared risks by the governments on 50-50 basis enables banks to request a lower percentage of the collateral required as compared to normal loans. This is meant to enable increased access to credit facilities by MSMEs.