Chase Bank lines up Sh60b to fund entrepreneurs

Chase Bank will lend Sh60 billion in new loans to small businesses over the next three years and help break stereotypes that some enterprises are not creditworthy.
Chief Executive Officer Paul Njaga said the allocation will also cement his middle-sized bank as the lender for up and coming entrepreneurs who now form the most-sought after customer base among commercial banks.

Mr Njaga told Weekend Business that his bank was building on the 20-year experience as a lender for SMEs to extend the new credit facilities to a new crop of entrepreneurs in agribusiness, trade and a specific focus on women in business.

“Women are a fantastic group because they are more focused when they get into business,” he said. Mr Njaga was among the speakers at the recently-concluded Global Entrepreneurship Summit in Nairobi and graced by US President Barack Obama. He was sharing his experience as banker and lender for the small businesses, which he says are responsible for two of every three jobs in Kenya at present.

“The situation is not different anywhere in the world, even among the biggest economies.” More than half of Chase Bank’s Sh70 billion worth loan-book has been extended to SMEs he said, with the last three years being the most dramatic in terms of uptake.

Five-year targets in new loans were achieved in two, prompting the bank to embark on capital-raising ventures from strategic investors in Europe and more recently, through a corporate bond floated at the Nairobi Securities Exchange.

Equity stakes

Investment arms of the German, French and Swiss governments have collectively taken up about 22 per cent of the bank by acquiring equity stakes while the rest is held by its founder Zafrullah Khan and his close associates.

In the corporate bond floated in June, the lender raised Sh4.8 billion in the first tranche of the Sh10 billion approved by the Capital Markets Authority. The oversubscribed issue had a target of Sh3 billion, which in itself was a stamp of approval for the bank’s focus on SME lending by the general investor, Njaga said.

But the banking sector has not always been as receptive to funding business ideas and entrepreneurs. Until just ten years ago, Kenyan banks widely shunned the small businesses, with their focus fixed on high net-worth individuals, corporate entities and the struggling lenders could cover a few salaried workers.

But after the success of Equity Bank, whose managing director James Mwangi says would always focus on the common man, most peers have followed suit and booked significant gains while at it. All the major commercial banks now have fully-fledged SME-focused departments and allocated huge resources to tap the lending opportunities presented by the small businesses.

Njaga says his bank has always seen those opportunities but it was a smaller player that has only recently joined the big league. Mr Khan acquired the United Bank, which had a single branch based in Kisumu, in 1995 and transformed to the lender it is now.

Family-owned

United Bank was then under statutory management of the Central bank of Kenya, and was undercapitalised – as were tens of other banks that were mainly family-owned.

Chase Bank will be returning to the capital markets within two years to raise the second tranche of the corporate bond, whose cap has been set at Sh5.2 billion but are confident of an over-subscription.

The bank owns micro-lender Rafiki Deposit Taking Microfinance and investment bank Genghis Capital. Chase group also owns investment advisors Orchid Capital, real estate firm Lighthouse Properties, and medical insurance company Tulip Healthcare.