SME lending gap filled by NIC bank/ATI partnership

John Gachora, Group Managing Director of NIC Bank and ATI’s CEO, George Otieno, announced what they believe is a unique partnership aimed at addressing the lending gap that exists most notably in the SME sector. Under the transaction, NIC Bank will be the first bank to take up ATI’s new insurance cover that will protect NIC’s entire portfolio of trade finance borrowers against the risks of insolvency and non-payment—risks that have traditionally inhibited most African banks from lending to SMEs. “A need has arisen in the ordinary course of SME business where good trading business and credible contracts are won by performing companies but financial strength and/or credit access by the same companies is considered inadequate,” said Mr Gachora. The ATI product will help banks extend credit facilities such as short-term loans, invoice discounting, bank guarantees and letters of credit without the requirement of the standard tangible securities as is the current practice by banks. This stands to have a positive impact particularly on the SME sector, which has historically been hindered from accessing working capital due to insufficient security.hideIn the past few years, international institutions have made efforts to provide solutions to mitigate the gap. Organisations such as the newly-formed African Guarantee Fund are helping to encourage banks to support the sector but the main challenge is that demand tends to outstrip their resources. Last year approximately Ksh1.6tn was loaned out to the private sector with only a nominal percentage of that figure going to the SME sector. While banks recognise the potential opportunities this sector presents, many have found it difficult to capitalise on the SME opportunity because of the challenges in obtaining financial information from the stakeholders in the sector. The ATI product stands to impact the financial industry because it provides a mitigant against credit default risk, thereby opening up a window of opportunity for both the SMEs and the banks to benefit. “Our approach to finding an effective solution started with the idea that we wanted to help banks lend safely to as many clients as possible. We hope this product will continue to evolve to help them spread their financing to under-served populations, such as SMEs, with the objective of bringing them into the formal financial arena,” noted Mr Otieno. ATI also intends to tap into the growing demand by banks interested in expanding into the Sub Saharan region, where risk diversification and portfolio management are essential criteria. The product is geared at helping banks get their risk houses in order, building a natural synergy for institutions in expansion mode. Financial institutions continued to account for the majority of ATI’s client base in 2013. “The product was primarily created as a result of our clients disclosing to us their most pressing challenges,” added Mr Otieno. “We anticipate that this will be a much sought after product in Kenya and in other markets where we operate simply because the opportunities for companies to trade in the region have opened up tremendously in the last few years—with this product, companies can now access bank financing that will help them achieve their expansion targets.” ATI’s product, under the terms of the NIC Bank agreement, will have an aggregate limit of Ksh430m (US$5m) protecting NIC’s trade finance facilities comprised of short-term loans, letters of credit, bank guarantees and invoice discounting.

SME lending gap filled by NIC bank/ATI partnership

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