CENTRAL BANK OF KENYA
Keynote Address
BY
PROF. NJUGUNA NDUNG’U
GOVERNOR
STANDARD CHARTERED/INTERNATIONAL FINANCE CORPORATION
SME TRAINING PROGRAMME
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Tuesday, October 19, 2010

Mr. Richard Etemesi, Chief Executive Officer, Standard Chartered
Bank Kenya Limited;
Mr. Jean Phillippe Prosper, Director, Eastern and Southern Africa,
International Finance Corporation; represented by Aida Kimemia, the
IFC Eastern and Southern Africa Acting Country Director;
Facilitators;
Distinguished Guests;
Ladies and Gentlemen:
I am greatly honoured to be accorded this opportunity to give a brief keynote
address at this important SME training and mentorship programme. Let me start
by applauding the Standard Chartered Bank for responding to the United Nations
Business Call to Action to engage the private sector in using their core business
skills to help advance the Millennium Development Goals. I am informed that this
programme was piloted in Pakistan in 2009 and I am delighted that it is being
hosted in Kenya today.
The partnership between the International Finance Corporation (IFC) and
Standard Chartered Bank to develop the capacity of small and medium sized
enterprises (SMEs) is worth commending. As we all appreciate, the potential of
SMEs to substantially contribute towards the desired economic growth is
immense. Through training and mentorship programmes such as this, SMEs are
empowered to unleash their potential. The SME issue is now one of finance and
banks should take the lead.
SME Financing has indeed been recognized globally as a critical component of
financial sector development. This is in view of the critical role that SMEs can play
in wealth and employment creation particularly in developing countries. As you
may be aware, the G20 has set up the Financial Inclusion Experts Group to
explore the twin themes of innovative access to finance for the poor and the
SMEs. The Group is expected to make recommendations on scaling up successful
models of SME Financing. These recommendations are expected to be tabled and
adopted at the upcoming G20 Seoul Summit next month as part of the Financial
Inclusion agenda.

Ladies and Gentlemen: The Vision 2030 envisages the strengthening of SMEs
to become the key industries of tomorrow by improving their productivity and
innovation. But what constraints do the SMEs face?
1) Majority are unbanked
2) They are sensitive to costs of finance
3) Their faces are not seen – most do not have a corporate identity
4) Low investment levels and hence low returns
So we must make them banked and acquire a corporate identity through training
and financial inclusion. To this end the Minister for Finance through the Finance
Bill for the Fiscal Year 2010/11 reiterated the role of SMEs in promoting Kenya’s
sustainable development. The Minister established a revolving fund of Ksh.3.8
billion through which the Government will enter into a Credit Facility Agreement
with banks to support SMEs. Through this partnership, the Government expects
banks to match Ksh.5 at the minimum for every Ksh.1 invested by the
Government to expand the Fund five-fold to Ksh.15 billion at the minimum. In
this regard, I commend the several banks that have already established
departments dedicated to SMEs and launched niche products targeted at SMEs
because they will push this agenda forward.
Ladies and Gentlemen: Allow me now to briefly share with you the initiatives,
policy and regulatory reforms the Government, the CBK and other players are
pursuing, geared towards addressing the challenges experienced by the promoters
of SMEs that is, making them banked and to enjoy financial services fully.
• First, the licensing and regulation of Deposit Taking Micro Finance
Institutions by the CBK has increased the avenues for financial services and
funding to SMEs since these institutions target the lower segments of the
market which most promoters of SMEs occupy.
• Second, the CBK has also initiated new banking models such as agent
banking which brings banking services closer to the consumers. This solves
the physical distances and costs associated with them. So far a total of

5,892 agents have been approved and the number is growing. This model
not only lowers the cost of doing business for banks but it also enhances
service delivery to SMEs in distant areas.
• Third, the introduction of credit information sharing enables SMEs to build
information capital which they can use as collateral for bank facilities. Lack
of physical collateral and information asymmetry has constrained SMEs
and individuals in accessing credit from banks.
• Finally, we remain open to suggestions and options that can work better for
the market.
Ladies and Gentlemen: As I conclude, it is worth reminding the SMEs the
potential benefits to be reaped from the larger EAC market. With the
operationalisation of the Common Market Protocol in July 2010, it is an
opportune moment for SMEs to exploit the business opportunities presented by
the free movement of resources. Similarly, I encourage SMEs to take advantage of
the investment avenues created by Kenya’s New Constitution. The confidence to
create strong institutions to develop and protect the market will increase the level
of economic activity.
I take this opportunity to assure you that the CBK, as an agent of the
Government, and through our partnership with the players in the banking sector,
will continue to discharge our mandate towards a safe, efficient, sound and
inclusive financial system. To the commercial banks, your success hinges on your
ability, flexibility and capacity to satisfy your customers’ needs. The challenge of
SMEs is one of finance, you can solve this, but SMEs must be financially included.
When they are financially included, they will be mentored and receive financial
services and more credit through the market mechanism that works and
expand/grow their business.

With these few remarks, I now take this opportunity to wish all the participants a
fruitful training and mentorship programme and look forward to the increased
contribution of SMEs towards making Kenya a middle income country as
envisaged in Vision 2030.
Thank You for your attention