IFC bets big on Kenyan banks – Business Daily
International Finance Corporation (IFC) East Africa Regional Director Jumoke Jagun-Dokunmu at Nation Centre, Nairobi on May 24, 2022. PHOTO | LUCY WANJIRU | NMG
The International Finance Corporation (IFC) is channelling billions of shillings into Kenyan small businesses and women-owned enterprises through strategic loan partnerships with banks, plugging a gap in the local credit market that remains wary of risky SMEs.
The international financier’s exposure to local tier-one lenders through debt and equity totalled Sh105.8 billion at the end of 2021, comprising mainly of medium-term credit facilities that are also backed by fellow development finance institutions.
The IFC has recently committed $2 billion towards financing MSMEs in Africa, seeing them as the fundamental for delivery of essential services, job creation, and reducing poverty.
In Kenya, the international financier has sought to utilise the wide reach of the large banks both locally and through their regional subsidiaries, which offer a strong credit delivery and monitoring system that is not available to smaller lenders or international financiers.
“Supporting small businesses and climate-friendly projects is central to IFC’s strategy in Africa to help create jobs, respond to climate change and leverage the opportunities afforded by the digital economy,” said Mohamed Gouled, IFC vice president of risk and finance, after the signing of a $165 million (Sh19.5 billion) co-funded loan facility with Equity Group in May.
For the local banks, these IFC loans help to augment their capital for onward lending to small businesses, with a significant amount coming in when the Covid-19 pandemic hit Kenya.
Equity Group accounts for the largest share of these loans at Sh52.8 billion, comprising Sh38.9 billion in loans for its Kenyan and Democratic Republic of Congo units and a 6.7 percent stake in the lender that the IFC acquired from Britam for Sh13.9 billion in April.
Last year, Equity raised its borrowings from the IFC by Sh17.1 billion to Sh38.9 billion, overtaking KCB as the lender with the highest exposure to IFC credit. KCB and Co-operative Bank carried IFC loans worth Sh27.9 billion and Sh17.9 billion respectively by the end of last year, while loans to DTB and NCBA stood at Sh6.35 billion and Sh814 million respectively.
The foreign currency loan also builds up these banks’ forex positions — just like the government’s external borrowing bulks up official forex reserves — which allows them to support businesses that import products or raw materials.
The tenor of these loans is also an important factor for the banks, allowing them to offer smaller businesses longer credit terms.
Equity’s IFC loans were for instance pegged at rates of between 1.9 percent and 5.6 percent above the benchmark US dollar Libor (London Inter-Bank Offered Rate). KCB’s borrowings are pegged at between 3.5 percent and 5.3 percent above Libor.
The facilities will, however, need to be repriced now that the Libor benchmark has been phased out.
The IFC has opted to adopt the Secured Overnight Financing Rate that has been developed by the Federal Reserve Bank of New York, and which has been chosen as the new benchmark for dollar-denominated contracts.