Justus Ondari

Source: allAfrica.com

17 May 2010

 

Nairobi - Equity Bank is promising small and medium businesses cheap loans after partnering with the China Development Bank, in a move that is set to trigger a new wave of price wars in the banking sector.

Under a Sh4 billion ($50 million) loan facility from one of the largest Chinese banks, Equity is offering small and medium enterprises (SMEs) loans at interest rates of between 7-9 per cent for periods of three to seven years.

This makes the deal arguably the cheapest source of funding for the sector in the country.

"We are changing our strategy by forming a corporate segment that will be competitively supporting our small and medium customers. We will no longer be surrendering our SME customers to corporate banks," the bank's chief executive officer and managing director James Mwangi said on Monday.

The SME sector in Kenya faces the challenge of high cost of credit, high bank charges and fees limiting its potential to contribute to the country's total wealth as measured by the Gross Domestic Product.

Mr Mwangi said the facility enables the bank to advance long-term development loans of between Sh3 million and Sh30 million to small and medium entrepreneurs in the country at affordable interest rates.

"This will not only spur growth of the sector, but also enable SMEs to increase their capacity to supply the new EAC (East African Community) common market," he said after signing the loan agreement with the governor of China Development Bank Jiang Chaoliang in Nairobi.

Equity, the country's biggest bank in terms of customer base, becomes the first beneficiary of the Chinese Sh385 billion ($5 billion) fund for the development of SMEs in Africa.

The fund's establishment was announced during the Beijing Summit of the Forum on China-Africa Cooperation in November 2006.

"This signing signifies south-to-south cooperation and collaboration to address our common challenges," said Mr Jiang during a function attended by Foreign Affairs Assistant Minister Richard Onyonka.

China Development Bank is the biggest development bank in the world with over Sh7.5 trillion ($97 billion) in assets larger than all other development banks in the world put together.

"It is significant that Kenya and Equity Bank becomes the first beneficiary of this SME fund for Africa. It reflects the growing relationship between Kenya and China," said the governor and CEO of China Development Bank.

The Chinese bank has been studying Equity Bank with a view to learning its model of banking and its sustainability for rural China.

On its part, the Kenyan bank has been seeking funding and transfer of low cost housing technology and long-tern funding for SME's.

During the signing event held at the bank's Equity Centre headquarters in Upperhill, Mr Mwangi announced a reduction of its base rate to 12 per cent from 15 per cent per annum.

Equity lends to farmers through Kilimo Biashara at 10 per cent rate interest, to women at 10 per cent and the youth at 8 per cent.