Standard Chartered Bank (SCB) has signed the first ever currency swap in the market as Kenyan banks scramble for the once neglected micro-finance sector.

SCB offered the first ever cross currency swap to Faulu Kenya, a leading micro finance institution in the country in a deal that now sees the bank absorb the foreign currency risks.

This is as a result of a subordinate loan obtained by Faulu Kenya amounting to some five million euros from Deutsche Bank Micro Finance Funds in New York.

The loan was offered in form of euros and therefore Standard Chartered Bank committed to undertake the foreign currency risk on behalf of the microfinance institution. This will automatically lock the exchange rate fluctuations for the next seven years when the funding is to be completed.

The transaction will see Faulu Kenya access Ksh460 million without having to bear any foreign exchange risks.

Mr. Mark Myers, the executive director in charge of wholesale banking at Standard Chartered said the development means the bank was connecting the small and medium enterprise sector in the country through Faulu Kenya.

Myers said the bank was undertaking a grand plan that will see it be the deposit taking bank for micro finance institutions as part of its growth strategy.

"There is every need to strengthen the SME sector if the country is to realize youth employment, poverty eradication and financial empowerment. We as a bank are committed to realizing this through Faulu Kenya," said Myers.

Faulu Kenya chief executive officer Ms. Lydia Koros said the institution could have had difficulty accessing the funds in foreign currency and the intervention by SCB would go a long way in helping the microfinance institution meet its key mandate.

"The bank has given us an opportunity to access these funds without a foreign exchange risk. This will enable us continue lending to our customers helping them run sustainable business thereby building their confidence in us," said Koros. Koros said through SCB's tailor made packages for the SME sector, Faulu Kenya's loan processing has been automated thus easing the disbursement process to customers in the SME sector.

"Through the automation of loan disbursement process, Faulu Kenya can now disburse over 5,000 loans per month and eliminate delays in disbursement and possible errors caused in signing thousands of cheques," said Myers.

SCB was the pioneer in offering hedging facilities back in 2006 when it effected the first ever cross currency swap worth Ksh1 billion for the East Africa Development Bank.

The bank will be supporting key microfinance institutions though provision of finance as well as technical support to help in capacity building for growth in the sector.

Last year, it advanced a Ksh200 million loan to the Kenya Women Finance Trust, another microfinance institution that targets women.