World Bank’s IFC to finance EAC small medium firms

Monday, 15 October 2007
By Abwao Oluoch

NAIROBI, KENYA––East African financial markets will be the new financing vehicle for the region’s small and medium enterprises in a new initiative.

The World Bank’s private-sector lending arm, the International Finance Corporation (IFC) has opted to help smaller businesses across the region with sustained financing through local commercial banks.

IFC says it will concentrate its lending activities to the financial sector in East Africa, targeting at least 200 small and medium businesses with initial operational capital of at least Ksh3.5 million (US$53,000).

Mr. Jean-Philippe Prosper, IFC Senior Manager for Eastern Africa, told reporters at the start of the World Bank's publicity week in Nairobi last week that the IFC would set aside funds targeting women entrepreneurs in Eastern Africa, including private schools across the region.

"Our three main sectors of investment were infrastructure, tourism and the financial markets," Mr. Prosper said on the sidelines of the publicity week at Nairobi's Kenyatta International Conference Centre (KICC).

The IFC estimates that each of its associate bankers could get upto $50 million in the East African Community (EAC) member states. Considering that each of the eligible borrowers get an overage of $200,000, several entrepreneurs would then benefit.

Prosper said: "If we do about $50 million for onward lending, at least 200 SMES would be financed. The benefits would be much bigger," he said. East Africa has a relatively developed financial sector as opposed to other regions on the continent, with a combined banking portfolio of about 100 banks.

Kenya has the largest concentration of over 50 commercial banks, two mortgage firms and over 52 foreign-exchange bureaux while Tanzania has 31 banking institutions, 24 of which are private commercial banks and seven-non-bank financial institutions.

Tanzania's financial sector also spreads its wings to 32 insurance brokerage firms, 10 insurance companies and 267 insurance agents. There are also 23 loss adjusters.

Uganda on the other side has 15 commercial banks, seven credit institutions and 19 insurance firms.

Rwanda has six commercial banks, about four insurance firms and a few non-financial institutions while no information was available for the Burundi banking sector.

IFC hopes to use the well-developed financial infrastructure in the region to distribute loans to the small and medium enterprises.

"The way we provide funding to the SMEs is through local intermediaries.

Our activity is to provide long-term financing Small and Medium Enterprises (SME) through the local intermediaries," Prosper said.

IFC, a multilateral lender whose overall investments in East Africa peaked around $287 million in its financial year 2006, which elapsed on 30 June, says the level of its investments in the three most important sectors would be driven by demand.

"We provide funding to the SMEs through the local financial institutions or we take some equity investments in the financial intermediaries/ banks we are working with and we use the equity for long-term investments," Mr. Prosper explained.

Studies about possible investments areas in Kenya have shown the horticulture industry, with 38 percent of the European flower market share, is one of the most eligible investment sectors, followed by tourism, transport and telecommunications.

In Tanzania, the private sector is dominated by small-family owned businesses in retail trade, import-export, and transport and hospitality areas. Some of these small companies are involved in small-scale manufacturing activities such as soap-making, bottling, packaging and food packaging.

Uganda, with 100,000 existing enterprises, mostly small and medium enterprises, is expected to become a major beneficiary of the new World Bank's growth plan. The IFC, through its SME Solutions Centre based in Nairobi, would advance loans for small businesses with a capital base of at least Ksh3.5 million through local banks or financial intermediaries such K-Rep Bank in Kenya, Prosper said.

The World Bank's private sector lending arm has been active in Africa and invested at least US$500 million in the continent through equity stakes in existing businesses.

He said the Corporation also invested $130 million in an infrastructure project in Bujagali, Uganda and was also active in infrastructure investments in Kenya and Rwanda .

"We are active in the infrastructure and the financial markets," he said after addressing hundreds of participants who turned up for the start of the bank's publicity week in Nairobi.

World Bank's country director for Kenya Colin Bruce announced last week the bank would conduct a six-week publicity campaign, dubbed "connecting with you" to raise awareness about its funding activities in Kenya.

The publicity week is aimed at showcasing the bank's funding activities and partly trying to change the bank's public image from an institution known best for its stringent lending conditionalities and widespread reform measures that public managers dread.