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India-Kenya Relationship, Bilateral Trade, Recent Developments

Context: India announced a $250 million line of credit to Kenya for the modernisation of its agricultural sector.

About India-Kenya Relationship

Economic Relationship

  • Bilateral Trade Agreement: Since 1981, the nations have enjoyed Most Favoured Nation status, boosting bilateral trade to $4.235 billion in 2014-15, solidifying India as Kenya’s largest trading partner.
  • Investment Hub: Over 60 major Indian companies thrive in Kenya, contributing to various sectors, including manufacturing, real estate, pharmaceuticals, telecommunications, IT, banking, and agro-based industries.
  • Development Cooperation: India provides vital assistance through agreements like the $100 million Line of Credit for Agricultural Mechanization, supporting Kenya’s agricultural development.

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A Vibrant Indian Diaspora

  • Approximately 80,000 people of Indian origin and around 20,000 Indian citizens have enriched Kenya’s cultural landscape and contributed significantly to diverse fields.
  • In 2017, the Kenyan government acknowledged people of Indian descent as the 44th tribe within the nation.

Extending a Helping Hand

  • Vaccine Maitri Initiative: Recognizing the pandemic’s challenges, India supplied Kenya with 1.12 million doses of the AstraZeneca vaccine, including 1.02 million through COVAX and 100,000 as a direct donation.

Recent Developments

  • Enhanced Collaboration: India and Kenya have signed five Memoranda of Understanding to deepen cooperation in vital areas like health, ICT, energy, SMEs, and agriculture.
  • Market Access: India’s decision to grant access to Kenya’s avocados offers a significant opportunity for Kenyan farmers and bolsters trade ties.
  • Agricultural Support: India’s commitment to financing agricultural mechanisation aligns with Kenya’s development goals and promotes long-term agricultural growth.
  • Maritime and Security Collaboration: The Joint Vision Statement on Maritime Cooperation strengthens regional security by addressing shared challenges, including combating terrorism.
  • Technology and Skills Transfer: India’s initiative to facilitate the transfer of skills and technology in crucial sectors like health, education, ICT, and digital governance will empower Kenya’s capabilities and contribute to its overall development.
What is a Line of Credit?
  • A line of credit is a credit facility extended by a bank or financial institution to a government, business, or individual, allowing the customer to draw funds up to a specified limit as needed.
  • This financial arrangement can take various forms such as overdraft limits, demand loans, special purpose loans, and traditional revolving credit card accounts.
  • Interest is typically charged only on the amount drawn​​​.

Line of Credit by the Government of India

  • When the Government of India extends a line of credit, it is often directed towards other countries to promote foreign relations and economic partnerships.
  • These lines of credit are used to finance exports from India and development projects in the recipient countries.

Role of Exim Bank in Line of Credit

  • The Export-Import Bank of India (Exim Bank) is crucial in administering these lines of credit.
  • As a principal financial institution, Exim Bank manages the funding, ensuring that it is utilised for the intended purposes and oversees the financial aspects of these international agreements.

Benefits of Line of Credit

  • Lines of credit provide a flexible way to manage cash flow for individuals and businesses. They allow for borrowing as needed and repaying on a fluid schedule.
  • For governments, they are tools for strengthening international relations, supporting foreign policy, and promoting exports and projects in other countries.

Difference Between a Line of Credit and a Loan

Feature Line of Credit Loan
Definition Pre-approved borrowing limit accessed and repaid as needed Lump sum of money borrowed and repaid with interest over a fixed period
Type of credit Revolving Non-revolving
Access to funds Flexible One-time
Interest Accrues on the used amount Accrues on the entire amount borrowed
Repayment schedule As needed within the limit Fixed monthly installments
Collateral May or may not be required Typically required
Examples Credit cards, home equity lines of credit, business lines of credit Mortgages, car loans, personal loans

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