The International Finance Corporation (IFC) is set to fund the Bank of Africa (BOA) with Sh535 million ($5 million) worth of insurance against loan defaults.
BOA will get half the amount it intends to use on expanding its lending to small and medium-sized firms from the international financer.
“The proposed risk-sharing facility (RSF) will be up to $5 million (Sh535 million) and will cover credit risk taken by BOA on its portfolio of SME loans which can amount up to $10 million (Sh1 billion) in local currency equivalent,” said IFC in its investment disclosures.
The risk-sharing facilities offered by IFC are to help Banks expand their lending to new customers or areas in which little or no historical performance data may be available to estimate potential losses.
IFC will also provide technical advisory services to aid in identifying the borrowers and disbursement of credit.
Firms that are set to benefit from BOA’s new loans are those that fit IFC’s criteria, such as having 10 to 300 employees or a sale of Sh10 million to Sh1.5 billion in a year.
The IFC funds came when BOA had registered losses, pushing it to cut on lending amid breach of capital buffers.