Before starting her animal feeds company, Nancy Githuku ran a small poultry and dairy farm in eastern Nairobi. “Business was alright,” she says, “but I had a big challenge accessing quality feeds. So I decided to venture into the business of sourcing and selling animal feeds.”
Githuku saw a lot of potential to build her animal feeds business, but she had trouble finding affordable loans. “Most banks wanted me to produce collateral, like a title deed or logbook, as security for a loan, which I didn’t have,” she says.
The lack of collateral for loans is common in emerging markets like Kenya, especially for women. Most property ownership documents for land, homes or cars are in the names of men. This makes it hard for women to get business loans or other forms of financial help. During the COVID-19 pandemic, businesses run by women were particularly hard hit, as credit from other sources like families and friends dried up.
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EIB Global, the European Investment Bank’s international development arm, has invested nearly €700 million in Kenya since 1976 to help small and medium companies work with local financial institutions. Through deals known as intermediated lending, the European Union’s financial arm offers financing to local banks so they can give more loans to small businesses.
Githuku received a loan from the Co-operative Bank, which had in turn been backed by the European Investment Bank in one of these intermediated deals. “The funding I received didn’t require collateral or a guarantor,” she says. “This took a heavy load off my shoulder. And the interest rate was subsidised, meaning the loan was way more affordable than what was available in the market.”
Unequal access to credit
“Globally, and across Africa, women entrepreneurs need access to credit with terms that support their activities,” says Moa Westman, a gender specialist at the European Investment Bank, “Unequal access to credit remains a major stumbling block that holds back economic activity and social progress for women.”
These credit constraints are even worse for start-ups or new businesses and those growing slowly. Many financial institutions find these enterprises too risky, and exclude them or offer loans only at high interest rates.
“Women need initiatives that will remove the barriers to affordable financing, help women get businesses off the ground and contribute to wider economic growth,” Westman says.
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One of EIB Global’s goals is to help female entrepreneurs expand their businesses and create jobs. EIB Global helps local financial institutions lend to businesses or sectors that have higher risks, such as agriculture, which is increasingly threatened by climate change, or women-led businesses.
In some cases, EIB Global combines loans with grants from the European Union to help local banks develop new financial tools or improve their services. Local financial institutions also benefit from EIB Global’s good financial terms, including longer repayment periods and more attractive interest rates compared to other commercial national banks. The local financial institutions transfer these advantages to their clients.
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Helping banks shift focus to impact
EIB Global encourages local banks to shift their focus from the financial aspects alone and to look at the impact they are having on communities, which in turn is good for business. They are asked to track how many sustainable jobs are created, how many female enterprises are supported, how many green or climate action projects are supported. Banks are also encouraged to support the United Nation’s Sustainable Development Goals.
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One example of this work is a €50 million loan in 2021 that the European Investment Bank made to the Co-operative Bank, a large commercial bank in Kenya. This loan helped the Co-operative Bank support more small businesses that were hurt by the COVID-19 pandemic. The Co-operative Bank and the European Investment Bank have been working together in Kenya since 2003.
Gideon Muriuki, the chief executive of the Co-Operative Bank in Kenya, says this close cooperation helped the bank give more loans and assistance that addressed the economic, trade and health impacts of the pandemic.
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With the loan to her animal feed business, Nancy Githuku expanded her company and increased revenue. She became one of the main distributors of animal feeds in Kenya for her supplier. She now employs 30 people on permanent contracts, instead of three before she took out the loan. She also teaches other less fortunate people how to make money from urban farming.
“The loan I got from the Co-operative Bank really helped me during the COVID-19 pandemic,” she says. “Every other business was closing down, but I managed to survive and actually thrive, due to the capital injection from the bank.”
