The Ministry of Finance has formulated a flexible deal to encourage lending banks collaborate in the implementation of the 3.8 billion SME Fund. The Small and Medium Enterprise (SME) Fund has been formed with the intention to target a segment of the population that most banks have largely ignored.
A report on the establishment of the SME Fund revealed that Treasury was forced to devise structures and incentives agreeable to commercial banks for them to act as the intermediaries for the fund, which aims to avail soft loans to hawkers and kiosk owners, among others. The incentives forced the Treasury to avail the loans with long repayment terms of between four to six years, a grace period of 6 to 12 months, on interest rate to the tune of 4 percent and provide the qualifying institutions with capacity building grants to improve on their capacity to target the lower level clientele.
In order to incentivise the banks/MFIs (micro finance institutions) to take more risk and reach lower than their usual clients, the loan will be given for a longer duration to ensure that they have stable liquidity to give longer term loans.