Women, youth and small business owners will get loans from the State at six percent interest under the new Biashara Kenya Fund that will this year receive Sh2 billion to start operations.
The Treasury revealed terms of the loan through Biashara Kenya Fund regulations, which have been tabled in Parliament for approval and will lead to the merger of Uwezo Fund, Youth Enterprise Development Fund (YEF) and Women Enterprise Fund (WEF).
At six percent, the groups will borrow at half the prevailing commercial lending rate of 13 percent — a cap set by the Central Bank.
Private sector credit growth has been sluggish since the government capped commercial lending rates at four percentage points above the Central Bank rate in September 2016, after lawmakers said they were concerned about high rates.
But this has led to a private credit squeeze, with banks saying they are forced to cut back on loans to high-risk groups like women, youth and small and medium enterprise (SMEs).
“The interest payable on a loan advanced to the persons referred to in regulation 15 shall be at the rate of six percent per annum on a monthly reducing balance,” read the regulations.
Biashara Fund will also lend part of its money to financial intermediaries such as commercial banks and Saccos for on-lending to the special groups at a maximum rate of 10 percent.
Biashara Fund will lend money to commercial banks at an annual interest rate of three percent.
Intermediaries who provide counterpart funding at least equivalent to the amount advanced by the Fund will, however, repay a minimum interest of one percent.
The rules cap the maximum amount that the banks or financial intermediaries can advance a single borrower at Sh3 million.
A woman, youth or a disabled person shall be eligible to apply for a business loan if they are in a registered group where at least 70 percent of the members are aged between 18 and 35 years.
Money borrowed from Biashara Fund will be used for business only, with applicants expected to prove that they have established businesses.