Evaluation of KCB and Multiparty guarantees and an assessment on prospects of guarantee projects in Kenya
In 2012 Sida together with USAID entered into a guarantee agreement with Kenya Commercial Bank Group (KCB). The guarantee was set-up as a loan portfolio guarantee. The total guarantee cover is 50 % of the principal amount of which Sida covers 30% and USAID 20%. The maximum authorised portfolio was set at the USD 15 million and the guarantee had a total duration of six years, from September 2012 to September 2018. However, in February 2018 the guarantee was amended to extend the coverage expiration date to September 2021. This resulted in a decrease of the maximum authorised portfolio amount to USD 11,579,750. The final date to disburse loans under this guarantee was one year prior to coverage expiration, September 2020. The guarantee was designed to support USAID/Kenya’s Feed the Future strategy and Sida/Government of Kenya’s Agricultural Sector Development Support Programme (ASDSP). It was structured with flexible terms to ensure that viable World Food Programme Purchase for Progress (WFP-P4P) smallholder farmers’ organization contract holders will be among qualifying borrowers, which were defined as “non-sovereign Kenyan individuals, businesses, and organizations, including those smallholder farmer organizations with forward delivery or direct contracts from WFP-P4P.” Qualifying projects were defined as “investments along agricultural value chains, including the dairy, drought-resistant crops, horticulture, beans and maize value chains – defined broadly to include inputs and production, capital investments, aggregation, storage, processing, handling, and transportation . The guarantee agreement was set up with the restrictions of at least 40% of all Qualifying Loans should be for Qualifying Projects in the Coast, Eastern, Nyanza, Rift Valley, and Western Regions of Kenya. The guarantee was complemented with a Technical Assistance (TA) component to support both the bank and the borrowers. The TA was commissioned and managed by USAID.
In the same year of 2012, Sida entered another co-guarantee with USAID. The total guarantee cover was 50 % of the principal amount of which Sida covers 30% and USAID 20%. The maximum authorised portfolio was set at the USD 13 million, 7-year competitive/multi-party loan portfolio guarantee was designed to encourage the three proposed partner financial institutions. The portfolio is divided between partners as following: Kenya Women Finance Trust Deposit Taking Microfinance limited – USD 5 million; Deposit Taking Microfinance limited (SMEP) - USD 4 million; Micro Africa Limited Kenya (later named Letshego) - USD 2 million and a reserve amount of USD 2 million. The partner that first fully utilizes its maximum guarantee amount had access to the reserve amount. The guarantee was set up to support the lending to the agriculture and clean energy sectors in Kenya; partners were expected to lend at least 10% of their facilities to the clean energy sector.
There are two purposes of the evaluation. The first purpose or the intended use of the evaluation is to evaluate the guarantees that were a part of the portfolio from 2012 until 2020 and to evaluate the development results thas these have achieved. In order to help the Embassy of Sweden in Kenya, Sida and its partners to assess achieved results of the KCB and Multiparty guarantee in Kenya to learn from what worked well and less well.
The second part of the evaluation is to help the Embassy of Sweden in Kenya to explore future prospects on guarantees based on: the lessons learned from the first part of the evaluation; taking into account the new development strategy in Kenya 2021-2025; benefitting from the current programmes in the agriculture and market development portfolios; and the current economic and financial situation in the country. The evaluation of prospect guarantees should focus on Small and medium sized companies (SMEs) and agriculture as the previous ones but also other relevant sectors and target groups in Kenya.