The effectiveness of the Khula Enterprise Finance Ltd's credit guarantee scheme

Akrong, Samuel Senalor (2013-03)

Thesis (MDF)--Stellenbosch University, 2012.


Small, medium and micro enterprises (SMEs) provide critical productivity and growth enhancing functions thereby contributing to a country’s gross domestic product and offering employment. Some of these small businesses however, face various challenges including restricted access to funding from private financial institutions including commercial banks. Banks are not readily disposed to extending credit to small businesses since they are perceived to be high risk, they lack collateral and the administrative costs associated with lending to them are high. Credit guarantee schemes such as the Khula Credit Guarantee Scheme (KCGS) are aimed at encouraging the flow of funds to small businesses through the sharing of risk between the lender, borrower and guarantor. Credit guarantee schemes have to be designed and implemented according to some international best practices but within a local context. This research report therefore, attempts to determine the effectiveness of the KCGS in terms of whether: • the KCGS is in line with best international principles and practices; • the scheme is meeting its objectives of lending to the targeted group; • the KCGS has generated the desired interest in lenders, and • the default rate amongst borrowers is within acceptable limits. The study finds that the KCGS has some features that are based on best international principles. But the scheme has not necessarily succeeded in lending to the targeted market, and default rates are very high. The study makes various recommendations, including the need for a comprehensive database of beneficiaries of the KCGS loan, providing non-financial support to beneficiaries, and the need to review the processing of claims.

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