KBA CEO CHAT - The Credit Guarantee Scheme & SME Credit Access

CEO | Betty Korir, Credit Bank, CEO
MONTH | May 2021
Chat Admin
Good morning everyone!
Chat Admin
Welcome to this morning's My Chat with a Bank CEO. To day's topic is The Credit Guarantee Scheme & SME Credit Access
Chat Admin
We are honoured to have Betty Korir, the Credit Bank CEO, host the chat session this morning. We look forward to her insights
Chat Admin
We do look forward to your participation in this session.
Chat Admin
As we wait to kick off the session at 10am, we welcome you to start sending your questions and thoughts around the topic so that we hit the ground running at 10am sharp.
Chat Admin
We see a coupleof people have already joined the meeting. Sylvia, Joshua, Regina, Isabel, Victor, Erick.
Chat Admin
Good morning, glad you could join the session
Joshua Masaki
Good morning all
eric asuma
Good Morning everyone. Always a pleasure engaging Bank CEOs about the industry and the economy. It has been long since we had a female CEO in the chat room. Looking forward to today's conversation with Betty.
nuru mugambi
Good morning looking forward to the session
Chat Admin
Good morning Nuru, Joshua and Eric. We are glad you could join the session
ALLAN KIVUVA
Good Morning great people,
Regina Ndiku
Good Morning
David Indeje
Good morning to each and everyone.
David Indeje
Q1: I still believe even after the approval from cabinet to establish the Credit Guarantee Scheme, no radical steps have been pursued to enhance credit access to the small and medium enterprises. Is it possible to know where the bottle necks are are and what more needs to be done to effect it?
Isabel Wangwe
Good morning,
Isabel Wangwe
Start-ups play a key role in developing economies, but the COVID-19 crisis is reducing their creation, challenging their survival, and limiting their growth. Lack of liquidity also limits their growth as most companies close up due to lack of working capital. What strategies can the banking industry / Government put in place to ensure start-ups see the light of day?
Betty Korir
I wish to welcome everyone. Access to credit is one of those topics that everyone that would like to engage on. Welcome everyone on board.
maina NJUGUNA
Good morning..... We are ready.
maina NJUGUNA
Does Credit Bank offer LPO financing to SMEs and what are the terms?
Joyce Njoroge
Good morning
maina NJUGUNA
Does Credit have SME-specific credit products and what are they?
David Indeje
Q2: I would like to know whether the steps taken by the CBK are sufficient enough in reducing the rigidity in the interest rate structure. This is with a bias that lenders still prefer investing in government securities rather than lend the money to SMEs
ALLAN KIVUVA
My one concern to @CEOBetty is on SME Credit access, Q:What is the banking industry current doing to improve credit access to start ups with only but a business proposal and/or a viable business idea? Do they qualify for credit? or should they have sufficient turn overs and good statements?
Joshua Masaki
From past interactions with customers, the biggest challenge for SMEs as well as some corporates has been access of credit. How does the Credit Guarantee scheme address this challenge and how do enterprises qualify? Can more innovative ways be established in assessing customer risk so as to advance more credit?
maina NJUGUNA
As you make credit accessible to SMEs from Credit Bank, what challenges are you encountering and what would you advise SMEs to do so as to ease their process of accessing credit from your bank?
Betty Korir
While Credit Guarantee Schemes take some time to deploy, we welcome the Governments move to enhance access to credit. As at now, there is a framework in place and there have been consultations especially amongst the seven participating banks and I am aware that several do have a pipeline under this program. You can get further details from the seven banks through their contact centers.
Betty Korir
Good morning Joshua
Betty Korir
Thank you for your question on why credit guarantee schemes are necessary.
maina NJUGUNA
Does Credit Bank offer asset financing for SMEs and what are your conditions and what is covered under this category of financing?
Carolle Rutto Rutto
Kindly share with us the participating banks..
Betty Korir
The purpose of credit guarantee schemes is to 1) influence credit allocation to make it easier for SMEs who ordinarily may not qualify for the lending; 2) protect consumers in the event of default; 3) support financial stability against a backdrop of increased risk.
Betty Korir
First the lender needs to look at the nature of the business the customer is in so as to determine the nature of the financing structure. Some of the innovative practices we've seen include receivable lending, where lenders lend against receivables or expected cashflows. The second one is reverse factoring, which is a practice where you look at the counterparty who is going to purchase the goods and lend to the SME client based on their buyer's credit standing. The final area is what Id call deferred payments model using tenored letters of credit, meaning you dont have to pay in the interim duration [until hypothetically 180 to 360 days] which gives the borrower time to build their cashflow.
Betty Korir
Welcome Maina and thank you for your question
Betty Korir
Maina, you raise an important point. SMEs are potentially deemed to be risky at this point of time, particularly due to COVID as their business models do not have buffer to cushion them against the recession.
Betty Korir
There is elevated risk has resulted in high default across most of the sectors that drive our economy. I would advise SMEs to ride on the current platform of the credit guarantee scheme and also talk to their bankers to understand how best to protect their margins. Banks have so far restructured 54 percent of the total banking portfolio so they are willing and ready to engage with clients to help them through this tough period.
John Kimani
How best can SMEs improve on their operation structures so as make their business predictable in terms of future performance consequently make it easier for lenders to advance credit seamlessly
Betty Korir
Hi Carolle, the participating banks are Absa, Stanbic, Co-Op, Credit Bank, DTB, KCB, NCBA.
Betty Korir
Hi John, its a very good question you ask.
David Indeje
Q3: What further steps are banks doing to include easing the rigidity in documentation requirements for SMES when seeking credit?
Betty Korir
First and foremost SMEs need to work on their corporate governance framework i.e. clear separation between management and shareholders; and demonstrate management understanding of the dynamics in their business and their sector. The third area is an endeavor to keep accounts so as to have a clear view on performance and cashflows. Cashflows are very critical. Solvency is also very critical for lenders, it is a measure for lenders to determine a borrowers ability to repay their debts. Solvency is influenced by the equity (or owners contribution) versus debts. Liquidity is another key area, as that is where payments come from. Ultimately they need to pay attention to the structure of their asset base and their governance framework.
Betty Korir
Hi Maina, Credit Bank does offer asset financing and you are very welcome to visit any of our branches or log on to www.creditbank.co.ke for more details.
maina NJUGUNA
Does Credit Bank have sessions to engage their SME clientele so that they can keep them updated on funds available, opportunities they might not otherwise know about, regulatory changes and internal bank changes when it comes to SMEs banking regulations?
Betty Korir
David I see your question about documentation requirements...
Chepkoech Scola
How sustainable is the CGS in our economy considering the high default rate that comes with SMEs?
eric asuma
Hi Betty, might you be aware of any other Development Agencies that are supporting this Scheme?
maina NJUGUNA
Outside what CBK had done in regards to mitigating Covid19 effects on businesses, what is Credit Bank offering their SME clientele to ensure that they stay afloat and do not close, lose business etc?
QUINTO KAMITO
Dear Betty, we have seen government front so many projects in order to derisk MSME’s this projects are launched but end up hitting dead end even before attaining the desired objective.Is it because of the leadership or lack of commitment from people charged with the role. For instance STAWI was the thing to watch and current Credit guarantee with the pilot of seven banks there is no clear roadmap of steering it to the next level
Joshua Masaki
Good point on Stawi, had forgotten about that
Betty Korir
Lenders require documentation from borrowers because first and foremost we are regulated and are accountable to our shareholders and investors. The regulatory framework ensures that lenders are not taking on uncalculated risks to the detriment of the depositors, shareholders and broader financial system [for soundness and stability of the industry]. The Government has been fair to SMEs by layering in a different risk standard from an accounting standards; as such, SMEs are accommodated by fostering proportionate adherence to documentation standards and other regulatory requirements.
Betty Korir
Welcome Chepkoech and thank you for your question. What government is trying to do is create a financial systemic safety net for SMEs, and such programs are typically a targeted intervention.
Betty Korir
Hi Eric the current Kenyan SME program is supported by World Bank and other partners; there are several other funds supported by sovereign wealth funds and by African Development Bank that include funding and technical assistance to make SMEs investor ready and make their projects bankable.
Betty Korir
Welcome Quinto, the Credit Guarantee Scheme is a noble intervention. Its important to note that these programs are successful when all parties play their role, including government, lenders and the borrowers. We find that in some cases there is a perception by borrowers that government supported lending programs are "free money" and we need to move away from this perception as a society. We do hope this current credit guarantee program will be a success and as the lenders we are committed to its success; and we hope that borrowers will utilise the guarantee scheme to enhance their credit access.
Betty Korir
Thanks Maina. Credit Bank is passionate about its customers and the need to stay afloat at this time. I encourage you all to visit our website or branches to learn more about us and how we can work with you.
Chat Admin
Our session is now coming to a close. We will be closing in a few minutes
Betty Korir
Thank you all for your time, I have enjoyed this interactive session. I would like to say that despite the challenges we are all facing, there is hope...we have seen the resilient nature of our people and I believe that if we work together we will make it through this difficult period. As a banking industry we are standing by and with our customers; I mentioned that banks have restructured 54 percent of our loan portfolios and we see the challenges our clients face and are here and ready to help.
Betty Korir
I cannot end without acknowledging our regulator Central Bank for the tremendous support they have given the sector and the economy with very timely interventions. We thank Dr. Njoroge and his entire team.
Betty Korir
Thank you all and have a great weekend.
Chepkoech Scola
Thank you Betty, that was so insightful.
Chat Admin
Ladies and gentlemen, our session has come to a close. We thank our host Betty Korir, Credit Bank CEO for such an insightful chat session
Chat Admin
We thank you; our participants for your participation, you made the chat session a success
David Indeje
Pia nawe, thank you for being candid
Chat Admin
As always we will have a transcript of the full chat session on this platform even after we close the chat room
Chat Admin
For now we wish you a good rest of the day and weekend ahead. Remember to log back in on 18th May, same time(10am to 11am) where the chat topic will be Strategies of Enhancing SME & Household Access to Credit