Germany Forgives Kenya's $60 Million Debt For Sustainable Development.

In a landmark agreement, Germany has agreed to cancel Kenya's $60 million (Sh. 8.4 billion) debt, but with a crucial caveat - the funds must be redirected towards climate resilience projects in the East African nation.

This debt-for-climate swap represents a strategic partnership between the two countries, where Kenya's financial burden is eased, and its commitment to tackling climate change is strengthened.

The move is part of Germany’s wider effort to tackle the global climate crisis and take advantage of its economic strength to lead green development.

Under the agreement, the forgiven debt will be reinvested in Kenya’s expansion of its renewable energy capacity and climate adaptation in the agricultural sector and rural infrastructure upgrades.

In addition to reducing Kenya’s carbon footprint, these investments will help boost Kenya’s resilience to the negative impacts of climate change, as well as contribute to Kenya’s economy and the well being of its citizens.

If Kenya's actions succeed in the fight against climate change, Germany is willing to forgive the remainder of the debt, thus creating a win – win scenario for both countries. Germany benefits from Kenya’s sustainable development.

The deal is the first of its kind but has precedent : in 2006, Italy became the first country to waive Kenya's loan through a similar debt swap programme, part of a growing global momentum to use financial instruments to tackle the urgent environmental problems facing developing countries.

LOANS IN STATE GUARANTEE SCHEME STALL AT 6.3 Billion.

Loans disbursed under Kenya's State-backed credit guarantee scheme for micro, small, and medium enterprises (MSMEs) have stagnated at Sh6.3 billion, reflecting the program's lackluster performance.

The scheme, which aims to increase the pool of funds available for lending by sharing default risks between banks and the State, saw only a marginal growth of Sh100 million in the first eight months of 2024.

Despite this, over 4,000 MSMEs across 46 counties and 12 economic sectors have benefited from the scheme's funding, which is capped at Sh5 million per borrower.

MSMEs play a crucial role in Kenya's economic growth and employment generation, accounting for approximately 40% of the country's GDP.

However, they face significant challenges in accessing affordable and high-quality loans due to factors such as insufficient collateral, high collateralization requirements, and the impact of the Covid-19 pandemic.

The credit guarantee scheme, established in December 2020 with an initial seed capital of Sh3 billion from the Treasury, aims to address these challenges by providing risk-sharing agreements between the government and participating financial institutions.