Kenya program grant could have been more effective

Audit report covers the period 9/82-8/84 and is based on document review and interviews with USAID/K, GOK, Central Bank of Kenya (CBK), and commercial bank officials and with loan recipients. The special discount facility, the focus of this audit, established within the CBK to provide short-term loans to businesses damaged in the attempted coup d"etat on 8/1/82, has been ineffective. Of the 364 business loans approved by the Rehabilitation Committee over a 2-year period, only 94 were granted by commercial banks. Banks have been unwilling to take 100% of the responsibility (as required by operating guidelines mutually approved by A.I.D. and the GOK) for loans to borrowers who they consider a credit risk or who lack adequate collateral. Additionally, 27% of the funds issued to these banks from the CBK have not been used for their intended purpose. Most of the affected businesses have either financed their recovery through other means or gone out of business. Recommendations are to: develop alternative uses for the funds remaining in the discount facility and program local currency funds accordingly; and issue an implementation letter providing for the use of principal and interest on loan repayments that have been or will be made to the CBK.