Rural private enterprise

The project, to be primarily implemented by the Ministry of Finance, will provide credit and business management assistance to rural private enterprises via commercial banks and PVO"s. In the main project intervention, commercial banks will on-lend $24 million in A.I.D. funds, matched by $24 million of their own, to rural private enterprises that meet economic and administrative feasibility requirements and either: (1) are labor-intensive; (2) increase foreign exchange availability; or (3) will provide increased markets, inputs, or services for agricultural production. Loan funds will be used either to establish a new business or expand an existing one (roughly 50% each). The maximum A.I.D. contribution to an individual loan will be $750,000; to ensure that small- and medium-scale firms receive a reasonable share of the loans, banks will receive incentive payments for loans under $75,000. The project will also provide business assistance to loan recipients via participating banks and an independent contractor. The project will also make grant funds available to PVO"s that provide credit and business assistance to small enterprises that directly benefiting the poor, especially firms supporting innovative investments and the economic activity of women. Because of mixed performance of PVO"s to date in Kenyan credit programs, an intermediary organization will be contracted to upgrade PVO capabilities and provide TA to PVO"s and their clients; this assistance will be required in use of project funds for PVO credit programs, which will be suspended if default rates exceed set limits. Primarily, however, A.I.D. funds will be used for nonfinancial assistance. To help USAID/K plan for future private sector initiatives, special studies - on the feasibility of using co-ops and finance companies as financial intermediaries, the potential use of a mechanism to guarantee direct bank lending, and on the indirect impacts of increased formal sector production and employment - will be financed. The project is expected to generate 7,000 new jobs directly and another 12,000 indirectly.