Equity gets Sh10bn IFC loan for onward lending

Equity Bank #ticker:EQTY is set to take a $100 million (Sh10 billion) long-term loan from the International Finance Corporation (IFC) to shore up the capital of its Kenyan banking subsidiary and lend to local small and medium-sized firms.

IFC did not disclose the cost of the debt but noted that it will be subordinate–rank below other loans with regard to claims on the bank’s assets.

The transaction marks the international financier’s increased lending to local banks, with the institution having provided billions of shillings to companies such as Co-op Bank. #ticker:COOP

“The project consists of an up to $100 million (Sh10 billion) subordinated loan to Equity Bank (Kenya) Limited to strengthen the bank’s regulatory capital and support its lending programme to the underserved micro, small and medium enterprises (MSMEs) segment in Kenya,” IFC said in its investments disclosures.

Part of the cash will also be used to support Equity’s financing of renewable energy projects. In addition to disbursing the loan, IFC will offer advisory services to the bank to strengthen its capacity to serve SMEs.

The global lender typically provides loans with an agreement that the funds will be used to lend to SMEs, women-owned firms and green energy projects as part of its social and environmental impact investing.

“The project is expected to have a catalytic effect on SME finance and sustainable energy finance in Kenya and attract more banks into these segments,” IFC said.

Firms that are expected to benefit from Equity’s onward lending of the IFC loan are those fitting the set criteria such as having between 10 and 300 employees or annual sales of Sh10 million to Sh1.5 billion.

The loan size per borrower will range from Sh1 million to Sh200 million.

Local banks are increasingly taking substantial loans from global funds such as the IFC, European Investment Bank (EIB) and Agence Française de Développement (AFD), attracted by relatively more favourable terms of the debt including lower interest rate and longer maturity.

KCB #ticker:KCB and Equity are among the banks that have borrowed from international financiers to fund their long-term lending business.

The lenders have complained of a mismatch between long-term loans and deposits that are mostly short-term in nature, exposing a gap that they have chosen to fill by credit from the institutions which charge single-digit interest rates.