“Biashara”, with its roots in the Arabic to “sell or buy”, is the Swahili word for business, but also translates as “trade” or “commerce”. By Legal Notice No. 55 of 2021 dated 10th of April 2021, the Cabinet Secretary for the National Treasury and Planning, in the exercise of the powers conferred to him by Section 24(4) of the Public Finance Management Act, issued the Public Finance Management (Biashara Kenya Fund) Regulations, 2021. The Regulations establish the Biashara Kenya Fund, whose purpose is to promote, expand and facilitate access to credit by enterprises established by currently financially marginalised segments of Kenyan society. The financially excluded persons comprise specifically individual, or group enterprises established by women, youth and persons with disability, and generally, micro, small and medium enterprises.

To avoid the conflict of mandates with already established statutory funds with a similar mandate, the Cabinet Secretary has simultaneously revoked the Public Finance Management (Uwezo Fund) Regulations; the Public Finance Management (Women Enterprise Fund) Regulations, and the Public Finance Management (Youth Enterprise Development Fund) Regulations. This legislative move collapses existing affirmative action funds (i.e., the Uwezo Fund, the Women Enterprise Fund and the Youth Enterprise Development Fund) and places the Biashara Kenya Fund as the sole affirmative action fund structured to enhance the financial inclusion and empowerment of youth, women, and persons with disability enterprises in the Republic of Kenya.

The establishment of the Biashara Kenya Fund thus operationalises the recommendations of the Presidential Taskforce on Parastatal Reform Report of 2014 which recommended the merger of existing affirmative action funds into a single fund to eliminate duplication of roles present in each fund’s activity thus enhancing the overall efficiency of each fund and enabling the efficient allocation of funds across the sectors that they seek to serve.

Management of the Biashara Kenya Fund:

According to Regulation 8, the Fund shall be managed through an Oversight Board which shall consist of a non-executive Chairperson appointed by the President; the Cabinet Secretary to the National Treasury; the Principal Secretary responsible for gender affairs; the Principal Secretary responsible for matters relating to youth; the Principal Secretary responsible for matters relating to micro, small and medium enterprises; three other persons from the private sector and the Chief Executive Officer of the Fund, as an ex-officio member of the Board.

The functions of the Oversight Board include the oversight of the administration of the Fund; reviewing guidelines on the Fund priorities and criteria for allocation and disbursement of funds to beneficiaries in furtherance of the objectives of the Fund, monitoring and evaluating the programme and activities under the Fund, ensure access to the services of the Fund in all parts of the Republic in accordance with Article 6(3) of the Constitution, review the performance of the Fund and make recommendations on the operations of the Fund to the administrator of the Fund, prescribe other guidelines for use by the Fund, mobilize resources for the Fund to be paid into the Fund and approve investments of any of the funds of the Fund which are not immediately required for its purposes in government securities in accordance with the provisions of the Public Finance Management Act, 2012.

While the strategic objectives of the Fund are largely spearheaded by the Oversight Board, the day-to-day running of the affairs of the Fund shall be carried out by a secretariat of the Fund, headed by a Chief Executive Officer.

According to Regulation 12, the Chief Executive Officer, at the discretion of the Cabinet Secretary of the National Treasury and Planning, shall serve in the office of the Administrator of the Fund, whose principal roles include but are not limited to:

• To open and operate a bank account with the approval of the Oversight Board and the National Treasury
• To supervise and control the administration of the Fund
• To develop such policies as may be necessary for the attainment of the objects of the Fund and submit them to the Board for approval
• To consult with the Oversight Board on matters relating to the administration of the Fund
• To cause to be kept books of accounts and other books and records about the Fund of all activities and undertakings financed from the Fund
• To enter into and sign agreements with all successful applicants or agents providing affordable and accessible credit to women, youth, persons with disability enterprises and micro, small and medium enterprises
• To open loan accounts of all successful applicants or agents and maintain a record of the amount disbursed and the balance thereof
• To prepare, sign and transmit to the Auditor-General statements of accounts relating to the Fund in such details as the Public Sector Accounting Standards Board may prescribe from time to time
• To furnish such additional information as may be considered proper and sufficient for the examination and audit by the Auditor-General

How the Biashara Kenya Fund is Structured

The initial capital of the Fund shall be KES 2.5 billion, appropriated by Parliament in the financial year 2020/2021 and additional capital of the Fund shall be made in the subsequent financial years’ budgets.

According to the Regulations, Biashara Kenya Fund shall consist of the following fund sources:

• Monies appropriated by Parliament for the purposes of the Fund
• Income generated from the proceeds of the Fund
• Income from investments made by the Fund; grants, donations, bequests or other gifts made to the Fund 
• Monies from any other source approved by the Cabinet Secretary

The proceeds in the Fund are apportioned as follows:

Eligibility

The eligibility criteria for access to the proceeds of the Fund include:

• In the case of a group, that is registered with the Department of Social Services, cooperative or Registrar of Societies and is running an enterprise or intends to start an enterprise and:
  • At least 70% of the membership is aged between 18-35 years
  • At least 70% of the membership is composed of women aged between 18 years and above or;
  • At least 70%of the membership is composed of persons with disability aged eighteen years and above
• In the case of women, youth, persons with disability, micro, small and medium enterprises registered under the Registration of Business Names Act, Partnerships Act, Companies Act, 2015 or Cooperatives Act and he or she is running an enterprise or intends to start an enterprise
• In the case of unregistered business, the person shall have a business permit and a Personal Identification Number issued by the Kenya Revenue Authority and he or she is running an enterprise or intends to start an enterprise
• In the case of a natural person, the person shall demonstrate that he or she is running an enterprise or intends to start an enterprise

It is essential to note that women, youth and persons with disability who are running an enterprise or intend to start an enterprise shall be given preference while processing loans by the Fund.

Conditions for Loan Disbursement:

The loans from the Fund shall be disbursed to a successful applicant subject to the fulfilment of the following conditions:

• All loans from the Fund shall be approved and recorded in the minutes of the Secretariat and a report submitted to the next Oversight Board meeting
• All loans from the Fund shall be advanced to the successful applicants and shall be disbursed through the bank account of the successful applicant, or any other appropriate account approved by the Oversight Board
• The Administrator of the Fund shall open and maintain loan accounts of all successful applicants the amount disbursed in each account and the balance 
• Such other additional conditions as the Oversight Board may impose on a particularly successful loan applicant

The Administrator shall agree with the successful applicant setting out the terms of the loans and loan repayment before the release of funds through the signing of a prescribed form by the Oversight Board.

Features of the Loan Agreement:

According to Regulation 16, the interest payable on a loan advanced to the persons referred to in Regulation 13, has been capped at a rate of 6% per annum on a monthly reducing balance.

Loans advanced through the Biashara Kenya Fund ought to be repaid in full within the prescribed period in the loan agreement. However, under Regulation 18, a borrower shall have a three-month grace period before the borrower is required to start repaying a loan.

Agents: An On-lending Mechanism for the Benefit of Marginalized Groups:

In an innovative move that ensures that the benefits of the Fund can be widely available to marginalized groups, the Regulations introduce the concept of agents of the Fund. Regulation 19 (2) states that a microfinance institution, registered NGO, registered group or any other institution approved by the Oversight Board that wishes to be an agent of the Fund shall apply for the loan and enter into an agreement with the Administrator in the manner prescribed by the Oversight Board.

The Biashara Kenya Fund proposes to give loans to agents for on-lending to the target groups. It is important to note that the interest payable to the Fund on a loan advanced to an agent from the Fund for on-lending purposes shall be 3% per annum on a monthly reducing balance. Moreover, the interest payable on a loan on-lent by an agent to women, youth and micro, small and medium enterprises shall be at a maximum rate of 10% per annum on a monthly reducing balance.

The amount given to a single borrower has been capped at KES 2.5 million or such other amount specified by the Oversight Board.

Regulation 22 permits agents to provide matching funding of at least the amount equivalent to the amount advanced by the Fund. Upon the latter occurrence, the Oversight Board may reduce the interest payable to the Fund by a financial intermediary that provides counterpart funding from 3% per annum on a monthly reducing balance) to a minimum of 1%.

Conclusion:

The merger of the affirmative action funds could unlock the vision of the Constitution of Kenya, specifically Articles 27, 55(b) (c) and 56 (b) (c) which provide for affirmative action programmes and other resources concerning disadvantaged groups and youth aimed at ensuring equitable development of the State. While the promise of the Biashara Kenya Fund is great, its approach must be pragmatic and ought to consider the operational challenges which faced former individual funds and the weaknesses in their accountability structures.

In comparison with its peers, the Women’s Enterprise Fund has achieved notable gains in both impact and funding by its focus on corporate governance, prudent investment decisions and innovation in generating products targeted to serve women running enterprises in Kenya. This is best evidenced by the growth in the Constituency Women for Enterprise Fund Scheme (CWES) which disbursed loans worth KES 3.02 billion for 13,482 self-help groups to benefit 151,146 beneficiaries; translating to 121% approved budget absorption and 137% achievement against the Performance Contract of KES 2.2 billion. The Women Enterprise Fund leaned into the increased demand for group loans and has reaped great rewards.

For the Biashara Kenya Fund to achieve optimal results, it ought to intentionally incorporate the best practices sourced from the better-performing affirmative action funds, such as the Women’s Enterprise Fund. On the other hand, the new Fund should ensure that it does not inherit or re-institute the institutional weaknesses and challenges experienced by its predecessor funds, otherwise, it is doomed to repeat the mistakes that have plagued previous affirmative action funds in Kenya.