REVIEW OF THE PUBLIC FINANCE MANAGEMENT (AMENDMENT) (NO.2) BILL, 2020

The Public Finance Management (Amendment) (No.2) Bill, 2020 (the Bill) was published on 9th July 2020 and is expected to be presented for discussion by Parliament. The objective of the Bill is to amend the Public Finance Management Act, 2012 to enable the Cabinet Secretary to provide guarantees for loans advanced to micro, small and medium enterprises.

The Bill is in light of the current economic circumstances brought on by the Covid-19 pandemic which has seen a slowdown in major sectors of the economy since its onset. The Bill is also set to actualize the measures announced by the government in the 2020/21 budget statement, among which include the allocation of Ksh. 712 million credit fund targeted at Micro, Small and Medium Enterprises in the manufacturing sector.

The Bill gives the Cabinet Secretary for National Treasury the power to establish a scheme under which guarantees for credit may be extended to micro, small and medium enterprises. This power also includes the mandate of prescribing the regulations for the operation of such a scheme. Such regulations will provide for factors like; the institutions eligible to extend credit to these enterprises, the type of enterprises eligible for this scheme, the conditions for a grant of credit guarantee among others.

In addition to giving the Cabinet Secretary these powers, the Bill also expands the meaning of ‘medium enterprise’ to include a firm, trade, service, industry or business activity:
a. whose annual turnover does not exceed one hundred million shillings;
b. which employs between fifty-one and two hundred and fifty employees;
c. whose total assets and financial investment shall be determined by the Cabinet Secretary from time to time.

The Bill however retains the meaning of ‘micro’ and ‘small’ enterprises as the ones given under the Micro and Small Enterprises Act, 2012; where micro enterprise is defined as:
A firm, trade, service, industry or a business activity—
a. whose annual turnover does not exceed five hundred thousand shillings;
b. which employs less than ten people; and
c. whose total assets and financial investment shall be as determined by the Cabinet Secretary from time to time.

Small enterprise, on the other hand, is defined as a business enterprise that has an annual turnover that ranges between five hundred and five million shillings; that employs between ten and fifty people; and whose total assets and financial investment shall be determined by the Cabinet Secretary from time to time.

If enacted, private borrowers who are micro, small or medium enterprises will be able to access credit facilities for their businesses even if they lack the sufficient security necessary to secure the loan. The Cabinet Secretary will then be able to provide credit guarantees for such borrowers to enable them to access credit for enterprise development. However, such guarantee for credit will only be for a portion of the credit amount sought and not for the whole credit amount.

The Bill also obligates the Cabinet Secretary to prepare a statement of the credit guarantees granted under the scheme. The Cabinet Secretary will also be required to provide Parliament with a summary report of the statement of the credit guarantees at least once every year. This report will contain information such as: the total value of credit guarantees given during that period, the total value of credit guarantees liquidated during that period, the total value of outstanding credit guarantees on the date of the report, the risk assessment of the credit guarantees or classes of guarantees or any other relevant information required.

It is no secret that the ongoing Covid-19 pandemic has had adverse effects on the country’s economy which has been further compounded by the countrywide dusk-to-dawn curfew and cessation of movement in some counties, which has since then been lifted. Arguably, the hardest hit sector by the effects of the pandemic has been the micro, small and medium enterprises. This Bill should therefore be a welcome reprieve for such enterprises as it seeks to enable these businesses to access credit and keep afloat during this period without worrying about furnishing security for such credit. However, seeing that the proposed credit guarantees to be offered by the government are only partial and do not cover the whole credit amount, it is unclear what will happen to operators of MSMEs who do not have any sort of security and still wish to access credit facilities.

Input and views from the public on the Bill have already been collected vide a public notice that was issued by the Clerk of the National Assembly on July 13th 2020. It will therefore be interesting to see whether these views will be considered and added to the Bill going forward or whether the it will be presented to Parliament for consideration in its current form.

Post a Comment