Small and medium-sized businesses in Kenya will have their mobile and sacco loans guaranteed by the Treasury in a move meant to boost uptake of the government’s Credit Guarantee Scheme.
Introduced in 2020 as businesses felt the shocks of the p******c, the scheme which has seven commercial banks on board aims to enable greater access to credit for small businesses in Kenya. President Uhuru Kenyatta announced that its capital would eventually rise to Ksh100 Billion.
In the fiscal year ended June 2021, the scheme received an initial allocation of Ksh3 billion capital from the Treasury. However, only 334 businesses took up Ksh634.5 million prompting the move to include mobile loans and loans from saccos which many Kenyan business owners use.
In the event of default of the loan the Treasury will cover 25 percent of the credit. The loans are capped at Ksh5 million per borrower with a repayment period of 36 months.
A 2021 survey by the Competition Authority of Kenya (CAK) saw 54% of respondents state that they had taken mobile loans before. 91% of mobile loan users have used at least one of three products affiliated with Safaricom’s M-Pesa – M-Shwari, Fuliza and KCB M-Pesa. 38% of mobile loan users have ever used any product besides these three – mostly loan apps such as Branch and Tala.
While Kenyans take mobile loans for countless reasons, many business owners turn to mobile loan providers for credit as opposed to traditional banks, due to less stringent application processes and instant disbursement.
The government confirmed its intentions to bring the telcos on board, as they are the largest digital credit providers. For perspective, the CAK report found that M-Shwari is the loan product most commonly ever used but Fuliza recorded the most active users.
Phase 1 of the credit guarantee schemes was led by the involvement of commercial banks – namely KCB, NCBA, Co-operative, Absa, DTB, Stanbic and Credit Bank.
In the second phase the state wants to roll out this year, the scheme will be broadened.
The scheme’s allocation has increased by Ksh1 billion to Ksh5 Billion the year. The government is looking to hit Ksh10 billion in the medium term. The scheme’s expansion notably comes weeks after the mobile loans bill became law after it was assented to by President Uhuru Kenyatta.
The Central Bank Amendment Bill 2021 gave CBK a raft of supervisory and licensing powers over the operations of digital lenders in Kenya. The law was informed by widespread concerns on the unregulated nature of many digital lenders and exploitative practices by some players in the space – including exorbitant interest rates, debt shaming, privacy infringements and alleged money laundering.