Business and Technology Reporter in Nairobi, Kenya
Nation Media Group
East African lenders may have made strides this year in securing multimillion-dollar agreements for lending to micro, small, and medium-sized enterprises (MSMEs). But there is still a huge financing gap, with many smallholder firms struggling to access affordable credit.
Nearly all leading banks in the region have this year landed at least one major deal with international financial institutions, to provide subsidised loans to MSMEs, increasing the available pool of financing to the sector that provides over half of jobs globally.
This follows a renewed commitment by global lenders such as the International Finance Corporation (IFC), the European Investment Bank (EIB), and the African Development Bank (AfDB) to target smaller businesses with their financing.
Among the latest beneficiaries, Bank Populaire du Rwanda (BPR), a subsidiary of KCB Bank Group, secured $60 million from the IFC last week to lend to local SMEs, coming just a week after DRC’s largest lender, Rawbank, closed a $300 million five-year financing deal with IFC for similar use.
KCB Bank Kenya received $242 million from the EIB last month, marking its third MSME-focused funding this year. Earlier, the bank secured $31 million from the Bill and Melinda Gates Foundation in partnership with EIB and $95 million from Proparco and European Financing Partners.
In Kenya, other banks such as Co-operative Bank, NCBA, Stanbic Bank, Equity Bank, and National Bank of Kenya and Bank of Africa have also entered into agreements with international financiers specifically for SME on-lending.
Regionally, top banks such as CRDB (Tanzania), Banque de Crédit de Bujumbura (Burundi), Equity Banque Commerciale du Congo (DRC), and others in South Sudan, Uganda, and Rwanda have closed similar deals.
The IFC alone has committed $4 billion in 2024 for MSME financing globally, focusing on emerging markets.
According to Jesman Chonzi, East Africa's regional industry manager at IFC’s Financial Institutions Group, over 60 percent of the multilateral lender’s financing to financial institutions in the region this year targeted MSMEs.
“Our financing in the financial sector (in East Africa) has more than doubled over the last two years, and the bulk of our interventions are towards MSMEs,” Chonzi said in an interview.
But challenges such as informality, lack of credit history, and inadequate collateral continue to make lending to small businesses risky for financial institutions.
“Our interventions are trying to assist to smoothen some of these issues or challenges that are there,” Ms Chonzi noted.
Despite increased efforts, studies reveal that the MSME financing gap remains high. The International Monetary Fund’s latest Financial Access Survey indicates that MSME loans in Africa declined in 2023 compared to previous years.
The estimated financing gap in East Africa is currently $41 billion, with over 56 percent of MSMEs facing financial constraints.
Kenya, the DRC, and Tanzania account for the largest funding gaps, needing approximately $19 billion, $9 billion, and $6 billion respectively.
In most EAC countries, more than half of emerging enterprises are financially strained, except for Kenya and Burundi, where 41 percent and 47 percent of MSMEs respectively face funding difficulties.
Ms Chonzi believes that addressing the financing gap will require local capital market development alongside international support.
“Development partners can do their part, banks can do their part, but I also think there is a space where as Africa, we need to start mobilising our own local resources to also be channelled into these spaces,” she said.
The persistently high financing gaps have drawn increased attention from development financiers, policymakers, and financial industry stakeholders, underscoring the urgency of addressing this challenge.
Strategies to mobilise additional funding for MSMEs are expected to be a central focus at the upcoming Africa Financial Industry Summit in Casablanca, Morocco, next month.
The event, co-hosted by IFC, will “address the need for broader, long-term strategies to modernise and strengthen Africa’s financial industry,” according to Ms Chonzi.
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