• Customers to be offered unsecured loans ranging from Sh30,000 up to Sh250,000 for 1-12 months at an interest of nine per cent per year.
Central Bank of Kenya has partnered with five local lenders to launch a mobile loan product targeting small and medium business operators.
Dubbed Stawi,the product will see customers offered unsecured loans ranging from Sh30,000 up to Sh250,000 with repayment profiles of 1-12 months, at an interest of nine per cent per annum.
Speaking during the pilot launch of the product in Nairobi’s Gikomba market, CBK governor Patrick Njoroge said it will revolutionise the financing of micro, small and medium scale enterprises in Kenya.
‘’The mobile-based credit scheme is set to improve access to credit for small-to-midsize enterprises, which have been locked out of the formal credit market because of the informal nature of their records and lack of collateral for secured loans,’’ Njoroge said.
The loans will be be managed by he Cooperative Bank of Kenya Limited, Diamond Trust Bank Kenya Limited (DTB), KCB Bank (Kenya) Limited, and NIC Group Plc.
This is good news to small businesses currently being exploited by digital app lenders and shunned by formal lenders who view them as high risk.
Leading digital lenders in the country:Tala and Branch are charging borrowers interests of between 11-15 per cent per month, translating to up to 180 per cent per year.
Last year, Njoroge described digital lenders as worse than village shylocks.
"At least shylocks hide. These platforms shout about themselves openly while impoverishing Kenyans," Njoroge told the Parliamentary Committee on Communications, Information and Innovation in August last year.
According to CBK, customers will be scored and advised of their credit limit. They will be eligible for a top-up functionality once 80 per cent of the loan borrowed has been repaid or track record of three months’ repayment.
“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,” Njoroge said.
The pilot phase will be two weeks and will involve 3,500 traders in the MSME sector. 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.
The product is coming at the time banks are fronting risk based pricing to replace the interest capping law that was declared unconstitutional by High Court in March.
The cap law has seen lending to private sector shrink to a low of 2.4 per cent, with banks preferring to invest in secure government papers.