To boost operations and facilitate lending to small and medium-sized enterprises (SMEs) , Kenya’s I&M bank has secured a $40 million loan from the Dutch Development Bank (FMO). While announcing the development, the Dutch lender said the facility, which has a five-year tenor, will uplift I&M bank’s lending to small enterprises.
FMO’s Chief Investment Officer, Linda Broekhuizen said “by supporting the expansion of its operations, FMO can help give the local economy an extra boost”. FMO noted that I&M bank has a loan portfolio of about 121 billion shillings and almost 30 percent of them consist of loans to SMEs.
Attracted by relatively more favourable terms of debt like lower interest rates and longer maturities, Kenyan banks have in recent years taken loans from global funds such as International Finance Corporation, European Investment Bank, and the African Development Bank. Kenyan banks such as Co-op bank, KCB and Equity are among banks that have borrowed from international financiers to fund their long-term lending business.
After complaining about a mismatch between long term loans and deposits that are mostly short term, lenders decided to solve the problem by choosing to partner with international institutions that charge single digit interest rates. International borrowing was also encouraged when the Kenyan corporate bond market was shaken by the collapse of Chase Bank and Imperial Bank, which owes bond holders about 10 billion Shillings excluding interest.
Co-op Bank obtained a $150 million seven-year loan from the International Finance Corporation, while KCB, Kenya’s largest bank by assets, secured a $100 million loan from the African Development bank to facilitate lending to SMEs.
SMEs in Kenya were hit hard following the September 2016 ceilings on loan charges at four percentage points above the country’s central bank rare, which is now at nine percent. Most commercial banks in Kenya have suspended unsecured personal loans due to perceived higher risk of default.