Kenyan Fintech 4G Capital Joins Equity, KCB in IFC's KSh 3bn Risk Sharing Plan

The International Finance Corporation (IFC) has committed US$24.2 million (KSh 3.1 billion) in first-loss guarantees to help three Kenyan lenders expand financing to small businesses. 

• The transactions will be made with 4G Capital, Equity Bank Kenya, and KCB Bank Kenya, and will be IFC’s first under its Catalytic First Loss Guarantee program in Africa. 
• For 4G Capital, a fintech lender specializing in short-term working-capital loans to micro and small businesses, the transaction establishes a new financing relationship with IFC.
• The other two deals extend IFC’s existing relationships with Equity and KCB.

“Small businesses are the backbone of Kenya’s economy, creating jobs, generating income, and driving innovation in communities across the country. Through these partnerships, IFC is helping expand access to finance for entrepreneurs who have traditionally been underserved by the financial system,” said Mary Porter Peschka, IFC Division Director for Eastern Africa.

A first-loss guarantee is a commitment by a financial institution to absorb the initial losses on a loan portfolio, encouraging lenders to lend more by reducing their risk. Rather than providing all of the lending itself, IFC takes an agreed portion of the downside, allowing commercial lenders to put more of their own capital behind borrowers who might otherwise fail their risk tests.

Of IFC’s commitment, US$11 million (KSh 1.4 billion) is backed by financing from the International Development Association’s Private Sector Window. The remaining risk-sharing support is expected to help mobilize about US$120.2 million (KSh 15.6 billion) in additional lending. 

The financing will target microenterprises, women-owned businesses, and companies focused on climate-related activities. The arrangement comes against a persistent shortage of formal credit for MSMEs in Kenya despite employing more than 15 million people.

The World Bank institution said that the structure could support about US$144.4 million (KSh 18.7 billion) in new lending.