The International Finance Corporation will loan Co-operative bank a Sh15.2 billion 7-year loan for lending to small enterprises. The loan’s interest rate is unknown although IFC has in the past priced similar loans at the London Interbank Offered Rate (Libor). Libor is a benchmark rate that some of the world’s top banks use to charge each other for short-term loans. The 12-month Libor was at 2.4 percent on Tuesday.
The corporation, which is a part of the World Bank Group, revealed the plans to loan the Kenyan bank the aforesaid amount on Monday.
“The project comprises of a senior loan… to help strengthen the bank’s long-term funding position and enable it to expand its lending operations to the under-served micro small and medium enterprises (MSMEs) segment in Kenya,” IFC said in a statement.
The low-interest rates and low maturity nature of loans from international lenders have been attracting Kenyan banks. Recently, Kenyan banks have been getting banks from the European Investment Bank (EIB), the IFC, and Agence Française de Développement (AFD). For instance, Kenya Commercial Bank (KCB) and Equity are some of the other banks that have sourced funds from global lenders to facilitate their lending business.
Borrowing from international lenders has gained popularity after the local corporate bond market was impacted by the collapse of Imperial Bank and Chase Bank. The banks owe bondholders about Sh10billion minus interest.
IFC says the loan to Co-op Bank will aid it in meeting its social investment goals of expanding its credit services to SMEs in the manufacturing, trade, and agricultural sectors. The global lender believes that Co-op Bank has the ability to distribute the loan to SMEs across the country, particularly because it has about 6.5 million customers.
As much as international lending has its benefits, there is increased risk if the shilling weakens. The risk comes about when loans are dominated by stronger currencies such as the dollar and euro