Four banks have signed up for a mobile facility that would offer Micro, Small and Media Enterprises (MSMEs) loans at an interest of 9% per annum.
The mobile credit scheme, known as Stawi, will initially be managed by Commercial Bank of Africa (CBA), Cooperative Bank of Kenya, Diamond Trust Bank Kenya, KCB Bank (Kenya) and NIC Group.
Under the arrangement launched on Monday by Central Bank of Kenya Governor Dr Patrick Njoroge, MSMEs will have access to unsecured loans of between Ksh 30,000 and Ksh 250,000 repayable for between one and 12 months.
The move follows concerns that MSMEs have been locked out of the formal credit market because of the informal nature of their records and lack of collateral for secured loans.
Costumers will access the loan through a mobile phone application. The money will then be credited to the customer wallet.
They will be scored and advised of their credit limit. Additionally, they are eligible for a top-up functionality once 80% of the locan borrowed has been repaid or track record of three months’ repayment period.
Speaking during the launch at the Gikomba market, Dr Njoroge said the facility responds to the unique financing needs of MSMEs. He emphasised the the sector is vital to the Kenyan economy and the product could not have been launched at an opportune time.
“Until now, lending to MSMEs has been constrained by the lack of reliable information to assess their creditworthiness. The innovation in this product is the use of all data on customers’ transactions to fill this gap. In that sense, it was revolutionary,” he said.
He added that the cooperation between the five banks will enable them to reach out to a growing number of small enterprises, promoting job creation and income generation.
“Small and mid-size enterprises are the lifeblood of any economy, but many have struggled to secure the necessary financing to continue operations in the current economic climate. We are excited to work with the five banks to minimise the complexity of developing new and more accessible loan offerings and they bring much-needed capital to this underserved yet vital segment of the market,” added Dr Njoroge.
The pilot base will be two weeks and will involve 3,500 traders in the MSME sector while the second roll-out will be to 10,000 traders, who will be registered by Stawi agents and will be involved in the second round of tests for the app.
“We saw an opportunity to offer neglected yet viable Kenyan-based business additional financial options to continue day-to-day operations, and provide additional capital to maintain and establish long term growth,” said KCB Group CEO Joshua Oigara.
He added partnering with other banks has allowed KCB Group to bring a new business line to the market while offering the necessary expertise and scalablity to meet growing customer demand and strengtening MSME contribution to productivity and inclusive growth.
Cooperative Bank CEO Gideon Muriuki said: This is the first time we are having a loan with a single digit interest rate and we hope in the next phase, we will have all banks on board.”
On his part, NIC Bank CEO John Gachora said the banks rallied together after the CBK Governor asked for a way for them to fund SMEs.
“The Governor told us not to come here without a solution for you and we believe this one her will work for you,” he told Gikomba traders.
Diamond Trust CEO Nasim Devji said the product would come in handy for the thousands of traders who do not operate bank accounts but need access to loans at friendly rates to expand their businesses.
“We looked at a way to fill that gap and that’s how the five of us came together to come up with Stawi. We welcome traders to take this up and talk to us as we work to see their financial challenges eliminated,” said Ms Devji.
According Jeremy Ngunze, the CEO of CBA, research indicates that the market is ready for the product.
“There are thousands of people who have bank accounts but we also know there are many without. We believe that we have come up with a unique product that will that will be useful for a lot of those in business that will be accessible without having to go through a complex application process,” added Ngunze.