Nairobi – Kenyan commercial banks are earning the highest proportion of income from lending cash to small-and-medium enterprises (SMEs) compared to other African lenders, a World Bank (WB) survey has established.More than a fifth (20.5 per cent) of Kenyan banks’ net income is earned from lending to SMEs, nearly double the proportion that Nigerian banks make from the mid-sized enterprises, according to the World Bank research released last week.South African banks trace 15 per cent of their income from lending to SMEs, Tanzanian lenders make 16 per cent, while Rwanda comes closest to Kenya at 20 per cent."The difference between Kenya and most other sub-Saharan African countries is that innovation started through a combination of micro-finance-rooted institutions, scaling up to becoming commercial banks and innovation with lending models and technology in the retail banking segment by other institutions, most notably Equity Bank,” states the report authored by World Bank researchers, Gunhild Berg and Michael Fuchs.In Kenya, the research found that 17.4 per cent of total bank lending goes to SMEs, whereas it stands at 17 per cent in Rwanda. Nigeria, South Africa and Tanzania lag behind in SMEs’ share of total bank lending at five, eight and 14 per cent respectively.The World Bank notes that strong competition and innovation has driven Kenyan financial institutions’ lending to the small firms.The data, published in a policy research working paper, shows that Kenya stands out among other sub-Saharan countries in microfinance lending due to innovation on lending models and technology by commercial banks.The report looked at the role of competition, innovation and government in developing SMEs. It established that unique services offered by banking institutions such as hire purchase and invoice-discounting to SMEs that deliver to government and larger enterprises with reputable payment histories have resulted to growth in microfinance lending in the country.The report, which is part of a wider research in progress, says such developments have hence resulted to micro-clients moving up the financial ladder, while at the same time making upper-end banks downscale to target smaller clients.Other countries surveyed in the research that was carried out between 2010 and 2012 are Nigeria, Rwanda, South Africa and Tanzania.Besides Kenya, Rwanda is the only other country among those surveyed where lending to SMEs is vibrant. Lending was found to be limited at a few institutions in Nigeria, whereas it "is of minor importance for the big four banks in South Africa”.The variations on how banks get involved in SME funding among different countries was said to be dependent on the structure and scale of economy."Given the different structures of the economy, commercial banks in Nigeria focus their lending on the oil, gas and telecommunications sectors and the associated value chains.In Rwanda and Tanzania, banks need to lend to SMEs simply because of a lack of alternatives and the high competition in the corporate segment which makes margins relatively low,” the reports states.With a more diversified economy creating different market segment for financial institutions, competition in the SME market segment is hence strongest in Kenya. Despite this vibrancy, the legal and regulatory framework in Kenya was found to be wanting.The report states that lending environment to SMEs lags far behind in Kenya, Nigeria and Tanzania, with Rwanda and South Africa leading as the sub-Saharan countries with a more conducive lending environment. All commercial banks in Kenya were surveyed and data for 37 banks was obtained for the analysis.