The Treasury’s credit guarantee scheme for micro, small, and medium-sized enterprises (MSMEs) was designed to help small businesses gain access to bank loans, which they have struggled to do due to risk concerns.

However, by the end of 2020, only Sh4.4 billion in loans had been taken up by MSMEs under the scheme from seven participating lenders, with only Sh1.1 billion worth of guarantees accessed out of the Sh3 billion set aside by the Treasury.

Small businesses, especially those that have failed to obtain bank loans in the past, have chosen to continue accessing funding from non-bank actors like saccos, which offer lower rates. The Treasury’s most recent report on the scheme identified several challenges affecting the uptake of the fund, including unclear business classifications, banks’ misclassification of MSMEs, non-tax compliance of small businesses, and an imbalance in the distribution of funds favoring large urban centers.

The solution, according to the Treasury, is to onboard more financial intermediaries into the scheme to widen its geographical reach, especially in predominantly rural areas where microfinance institutions and saccos have a more extensive reach than commercial banks.

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