Finance Minister Ukur Yatani has limited loans to businesses owned by youth, women and people with disabilities through the new Biashara Kenya Fund, which will receive 2.5 billion shillings to start operations.
Mr. Yatani also lowered the maximum loan per borrower under the Fund to 2.5 million shillings in the updated Public Financial Management Regulations (Biashara Kenya Fund) 2021 from 3 million shillings in the previous rules promulgated last year.
The new rules will guide Kenya’s Biashar Foundation and end the seven-year merger of the Uvezo Foundation, Youth Entrepreneurship Development Fund (YEF) and Women’s Entrepreneurship Fund (WEF).
The process of establishing a single affirmative action fund was guided by the recommendation of the President’s Task Force on the 2014 Parastatal Sector Reform Report to eliminate duplication of roles, reduce overhead costs and improve efficiency.
Businesses owned by women and youth will receive 35 percent of the Fund’s loans each, while businesses owned by people with disabilities will receive up to 10 percent.
The share of micro, small and medium-sized enterprises is limited to 17 percent of the loans available, with the remaining 3 percent going to administrative costs.
“IN [Fund’s oversight] The Board may recommend changing thresholds with the consent of the Cabinet Secretary, then responsible for gender, in consultation with the Cabinet Secretary, then responsible for youth, and with the approval of the Cabinet Secretary, responsible for finance, for use in any fiscal year. ” – says the resolution of Mr. Yatani.
The Treasury kept the Fund’s borrowing costs at six percent, half the average commercial lending rate of 12.08 percent in April.
The fund will also partner with private sector organizations to increase lending. Its supervisory board was allowed to lend approved agents, such as microfinance institutions and nongovernmental organizations, at a three percent annual interest rate for onward lending.
Agents will match the cash advanced to them and lend to women, youth, people with disabilities and small traders at a maximum interest rate of 10 percent.
Government intervention is aimed at allowing enterprises in these three groups, which have been marginalized by lenders due to high risk of default and lack of collateral, to access credit for growth and development.
“We want to improve the efficiency of the entire system (granting affirmative loans) … and the big benefit is that the fund will grow from 2.5 billion shillings to 14 billion shillings,” Mr. Yatani said earlier.
The latest audited financial statements show that the Uvezo Foundation, established in 2014, has paid out schillings 6.06 billion to 65,169 women, youth and persons with disabilities as of June 2019.
The Youth Entrepreneurship Development Fund and the Women’s Entrepreneurship Fund (WEF), both established in 2007, have allocated shillings 12.8 billion and shillings 3.03 billion respectively to nearly 1.16 million young people and 13,482 women’s self-help groups by June 2019.
Auditor General Nancy Gatungu, however, gave a qualified opinion (questionable) on the Women’s Fund and a negative opinion on the Youth Fund and the Uvezo Fund, pointing out insufficient evidence to form a conclusion.
Although data from the banking sector over the years show that the default rate among small traders is lower than that of corporations, banks continue to assign them a higher risk profile, which usually leaves the market.
To mitigate the risks for small traders in the credit market, the Treasury unveiled a loan guarantee scheme last November that covers 25 percent of the loan in the event of default.
A woman, youth or disabled person is eligible to apply for a business loan if they are in a registered group in which at least 70 percent of the participants are between the ages of 18 and 35.
The money borrowed from Biashara Fund will only be used for business and applicants are expected to confirm the opening of the business.