COVID-19 pandemic sent shockwaves through the global economy, with Small and Medium-sized Enterprises (SMEs) bearing the brunt of the impact. In Kenya, the backbone of the nation’s economic activity, countless SMEs faced unprecedented challenges – disrupted supply chains, declining demand, and limited access to working capital.
Amidst the unprecedented challenges faced by Kenyan SMEs during the COVID-19 pandemic, the European Investment Bank (EIB) stood out as a unique and vital source of support, providing a much-needed lifeline.
Since 1976, the EIB has been a steadfast and long-term partner of Kenya. Their financing has been instrumental in developing the country’s infrastructure, clean energy sector, and private sector. The EIB has consistently provided financial support to small and medium-sized enterprises (SMEs) through partnerships with local banks and private equity funds, recognizing their important role in job creation and economic growth.
The EIB uses intermediated lending to lend to local small businesses. With intermediated lending, the EIB lends to a local bank, such as Equity Bank or Co-operative Bank. The credit comes with favorable terms, like more affordable pricing and longer tenures. The local banks are then expected to “on-lend” that money to target segments, like SMEs, and pass the favorable terms along. This allows SMEs to access affordable credit that might otherwise be out of reach.
As the pandemic unfolded, the EIB swiftly adapted its approach to address the specific needs of Kenyan SMEs. Their response went beyond simply offering loans. Here’s a closer look at some of the key initiatives:
KES 10.5 billion Initiative with Equity Bank
EIB and the European Commission joined forces with Equity Bank in a €75 million (KES 10.5 billion) initiative. This collaboration aimed to bolster financing for Kenyan businesses affected by the COVID-19 pandemic, providing easier access to credit for struggling SMEs. The initiative included €75 million in loans from the EIB to Equity Bank and €20 million in European Union grant support. Dr James Mwangi, Group Managing Director and Group Chief Executive Officer of Equity Group Holdings Plc, expressed gratitude for the support that strengthened the role of MSMEs, protected jobs, and stimulated economic growth during the pandemic.
“As an inclusive regional financial institution, these facilities strengthen Equity’s position to further enhance the strength of MSMEs, which are key actors in value chains and ecosystems, in the economy. By ensuring their survival and growth the MSMEs will continue to protect jobs, create more jobs and support lives and livelihoods in society, serving to create resilience as the pandemic subsides, vaccines become available in Kenya, and market growth returns”, said Dr Mwangi.
“We value our long-term partnership with the EIB and the European Union, who have walked with us and our customers on our path for sustained human development for many years, including their investment to scale Kilimo Biashara. We thank them for supporting our efforts to strengthen the role of MSMEs to stimulate the economy back to prosperity and hence support lives and livelihoods through market growth,” he added.
KES 6.55 billion Initiative with Co-operative Bank of Kenya
Recognising that various sectors were significantly affected by the pandemic, the European Investment Bank (EIB) collaborated with the Co-operative Bank of Kenya in 2021 to introduce a targeted financing initiative of €50 million (KES 6.55 billion). This program was designed to assist businesses in the sectors hardest hit by COVID-19 to recover and resume operations by providing them with the necessary financial resources.
Thanking the European Investment Bank, Dr Gideon Muriuki added: “Co-operative Bank’s commitment to the SME sector in Kenya will ensure that this facility will be available immediately to fund the acquisition of tangible business assets, working capital, development of distribution networks, innovation and business research, among other things, and contribute to the recovery of Kenya’s businesses following the COVID-19 challenges.
The targeted financing scheme extended support to companies in sectors most affected by the trade, economic, tourism, and health challenges caused by COVID-19. The facility unlocked investment to expedite private sector recovery from the pandemic. SMEs accessed long-term loans in amounts of up to KES 1.5 billion per customer withtenures of up to 7 years, which is significantly longer than the usual terms available.
Beyond the Numbers: The Impact on Businesses
While the financial figures associated with the EIB’s interventions are significant, the true impact lies in the stories of the Kenyan SMEs they helped.
Take, for instance, the Rapids Camp in Kenya.
Looking Forward: Building a More Resilient Kenyan Economy
The EIB’s intervention during the COVID-19 pandemic has played a crucial role in ensuring the survival of countless Kenyan SMEs. By providing essential financial support, they have helped to safeguard jobs, maintain economic activity, and foster a more resilient business environment.
As Kenya moves towards a post-pandemic future, the EIB’s continued commitment to the country’s private sector will be vital. Continued collaboration with local financial institutions and the development of innovative financing solutions will be essential for Kenyan SMEs to recover and thrive in the years to come.
The pandemic highlighted the critical role of SMEs in fostering economic growth and creating jobs. By supporting these businesses, the EIB is investing in Kenya’s financial future and the livelihoods of countless Kenyans.
The EIB’s successful partnership with Kenyan institutions during the COVID-19 crisis offers a valuable blueprint for future collaboration. This model of combining financial resources, technical expertise, and a focus on targeted support can be replicated to address other development challenges faced by Kenya and other African nations. By working together, the EIB, Kenyan financial institutions, and the private sector can build a more resilient and prosperous future for all.
