The Cabinet Secretary for the National Treasury and Planning has published the Public Finance Management (Credit Guarantee Scheme) Regulations, 2020. These Regulations will establish a Scheme that will be known as the Credit Guarantee Scheme. The funds of the Scheme shall consist of monies appropriated by Parliament, proceeds of the Scheme, income from investments made by the Scheme grants, donations, bequests or other gifts and monies from any other source as may be approved by the Cabinet Secretary.

Key definitions

Enterprise means an undertaking or a business concern, whether formal or informal, engaged in the production of goods, provision of services or trade in goods.

Financial intermediary means a commercial bank, microfinance institution, registered non-governmental organisations involved in financing, and savings and credit co-operative society

Objectives

The objectives of the Scheme shall be to improve and stimulate the national economy by encouraging additional lending to micro, small and medium enterprises (MSMEs), increasing their investment opportunities and strengthening the skills and capacities of their proprietors.

The second objective of the scheme shall be to facilitate the financing of micro, small and medium enterprises(MSMEs) by partially guaranteeing credit advanced to the enterprises and the last objective is to create a conducive business environment and promote partnerships between the government and financial intermediaries with respect to credit guarantees for micro, small and medium enterprises(MSMEs) and other related activities.

The Scheme shall be administered by a committee that will be known as the Scheme Steering Committee. It shall consist of the Treasury Principal  Secretary responsible for matters relating  to finance, the Trade Principal  Secretary, the Attorney-General, the  Governor of the Central  Bank of  Kenya and three independent members. The functions of this Steering Committee shall be to oversee the administration of the Scheme, advise the Cabinet Secretary generally on the operations of the Scheme, evaluate  applications  for  participation  from  non-bank  institutions and advice the Cabinet Secretary, advise  the  Cabinet  Secretary  on  designating  non-bank  institutions as participating financial intermediaries. Other functions will be to receive reports on the performance of the Scheme, to develop policy guidelines relating to guarantees by the Scheme, to review the criteria  for  issuance  of  credit  guarantees under the Scheme and to monitor and evaluate the activities of the Scheme.

Borrowers

Eligible borrowers have to be a micro, small or medium enterprise (MSMEs), registered as a business or company, registered  by  a  county  government  and  holds  a  valid  business permit or trade licence,  complied with the relevant tax laws and is not part of any group or enterprise which would otherwise not be eligible for a credit guarantee. They must intend to use the credit   advanced for business purposes.

Financial intermediaries.

Eligible financial intermediaries shall be eligible to participate in the Scheme if the financial intermediary is an institution licensed by Central Bank of Kenya, has experience in extending and managing credit facilities to micro, small and medium enterprises (MSMEs) and commits to extend credit facilities to micro, small and medium enterprises which shall be at least four times the amount that the Scheme will guarantee. The intermediary should have a wide geographical network, a wide sectoral coverage in its portfolio of credit facilities that have been extended to micro, small and medium enterprises(MSMEs) and has maintained a portfolio quality that is above the market average as demonstrated by low non-performing ratios on credit facilities that have been extended to micro, small and medium enterprises.

The Credit Guarantee Scheme is a timely facility that businesses in Kenya need especially with the effects of COVID to the economy. It will be a good life buoy to many micro, small and medium enterprises(MSMEs).