Central Bank Governor Dr Patrick Njoroge.

A quarter of small businesses defaulted on loans worth Kes98 billion last year owing to the economic fallout sparked by the Coronavirus pandemic, a new study shows.

The steady decline in sales due to government imposed lockdowns, curfews and other restriction of movement caused a sharp dip in businesses.

It especially affected small businesses with thin cash flows some which defaulted on their loans, others opted to restructure even as some closed shop at the peak of the economic crisis.

Central Bank of Kenya said a total of 72,559 MSME loan facilities in the banking industry valued at Kes 234.7 billion were restructured while a total of 6,253 MSME loans valued at Kes 2.6 billion were written-off.

“Of the 915,115 MSMEs loan accounts in the banking industry as at December 2020, 204,802 accounts valued at Kes 98.7 billion were classified as non-performing.  This   amounted   to   22.4   per cent   of   total MSME loan accounts,” the CBK said in a newly released study.

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“In the  12  months  to  December  2020,  a  total  of 6,253 MSME loans valued at Kes 2.6 billion were written-off, with commercial banks and microfinance banks writing off Kes 2.3 billion and  Kes 0.29  billion,  respectively,” CBK said.

Kenya’s Micro, Small and Medium Enterprises (MSMEs) make up a big chunk of the economy, contributing approximately 40 per cent of the GDP although the majority fall in the informal sector.

Banks fear exposure to nondescript businesses crouched in unknown locations whereas most small businesses prefer hiding in plain sight to keep dodge the taxman’s radar.

While there are about 7.41 million MSMEs in Kenya, only 1.56 million are licensed.

Following the announcement of the government SME credit guarantee scheme, there is renewed interest in Kenya’s small businesses as banks sign up to provide credit and the government bets all its chips in the sector for recovery.

The SME guarantee fund proposed by the government would give Sh10 billion while the European Union Sh11.7 billion (100 million euros) which will cover the risk for banks extending loans to SME’s reducing the fear of defaults.

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