Financing SMEs in the Energy Sector

Energy is one of the key components that contribute to the advancement of any economy. It is easy to underestimate the importance of energy as its critical role takes place in the background. Take a second to think about how important electricity, fuel and other energy sources are. Electricity literally enables the economy to run. From powering your cellphone to powering factories and from cooking at home to running hospitals.

According to the Economic Survey by Kenya National Bureau of Statistics (KNBS), the total installed capacity of electricity in 2018 stood at 2711.7 MW. Globally, the trend suggests massive investments towards renewable energy. Kenya is one of the countries leading in production of energy from renewable sources such as geothermal, hydro, solar and wind. Wind for example grew from 26.1 MW in 2017 to 336.1 MW in 2018 while grew from 0.7 MW to 50.7 MW respectively.

However, these new sources coming live to the grid require transmission and distribution to the final consumer. Empower Installation Contractors Limited (EIC) is an SME involved in various stages of transmitting and distributing electricity. The magnitude of transmission and distribution projects as well as other power projects can be daunting for an SME in terms of financing. Project budgets can easily be in the billions of shillings thus presenting a financing challenge for SMEs. Further, payment can take up a significant amount of time tying down finances to materials and other resources acquired.

A Different Approach

The traditional approach banks took was simply loaning SMEs to undertake a project. This approach created a financing challenge for SMEs as they often lack security. Another challenge is that of delayed payments normally associated with Government projects. This meant increased loan defaulting. This financing challenge for SMEs is one we took to heart and developed solutions to specifically meet your needs. Our Trade Finance Solutions bridge this financing gap in various ways.

As an SME, Credit Bank provides solutions to you in three main stages. The first stage is when you are bidding for a job. Companies like Kenya Power that hire EIC for their projects require certain assurances. At this stage, they want to know you are credible and capable of executing the project. As our customer, we can issue an undertaking to pay Kenya Power in case EIC fail to meet their obligations. For EIC, for example, they had a project of KES 350 million that required a performance bond – which is normally 10% of the project. What a performance bond does is provide assurance that the project will be done satisfactorily as per the terms of the contract engaged. Click here to see more solutions for the tender stage.

The second stage is when you’ve been awarded the tender to execute the project. The real financing challenge can come here for an SME as the cost of executing the project can be in the hundreds of millions such as EIC’s. What Credit Bank can do for you here is fund the project based on both your reputation and that of the buyer. The most common solution here is LPO/Contract Financing. At times, this can also be done through Invoice Discounting where you get paid in the interim as you execute your project.

The final stage has to do with the project execution. This is where EIC need to import equipment – or say you are just an SME in need of importing from abroad. Trade is risky because your supplier may not meet your requirements and may demand upfront payment before delivering the goods. Credit Bank resolves this by being an intermediary that you and the supplier can trust. Solutions such as Letters of Credit (LCs) are used more often. In the case of an LC, EIC can order for an item without paying first. Credit Bank assures EIC’s supplier of payment upon meeting EIC’s requirement thereby resolving the risk of international trade. Click here to discover more solutions for this stage.

Our financing solutions to the energy sector play an important role in the advancement of our economy. As a bank, we are determined to finance sectors that bring about positive impact to the economy. As an SME, the Bank provides innovative financing solutions that step away from traditional financing. What you get is an opportunity to grow as you remained focused in delivery of your products and services not having to worry on financing issues.

Trade Finance can further be structured to suit the entire process from bidding to contract fulfilment. Our solutions are suitable for any sector you play in and not limited to the energy sector. Talk to us today and see how we can help your business grow.

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