Lenders have been forced to cut interest rates and increase their limits to stave off competition from state-owned Hustler Fund.
On Monday, fintech Tala announced an increase in its loan limit to Sh50, 000 up from Sh30, 000 in what the company said was driven by increased credit demand.
Central Bank of Kenya licenced players in the mobile money market include Sokohela Limited, Sevi Innovation Limited, Rewot Ciro Limited, MywagePay Limited, Mwanzo Credit Limited, Kweli Smart Solutions Limited, Jijenge Credit Limited, Giando Africa Limited, Getcash Capital Limited and Ceres Tech Limited.
Tala has been operating on a provisional licence pending approval after CBK embarked on clearing 278 applications received in September last year.
The competition forced giant telco Safaricom to cut the interest rates on its overdraft facility, Fuliza.
Fuliza reduced payable interest by between 10-40 per cent, which came a few months before the launch of the government’s Hustler Fund.
At least Sh316 billion was borrowed on Fuliza six months to September 2022, which translated to Sh 1.8 billion per day, Safaricom data shows.
This was a 30 per cent increase compared to Sh242.6 billion borrowed same period in 2021.
At least 60 per cent of the loan was for consumption, illustrating survival mode for families facing tough economic times amid high inflation that hit 9.6 percent in October.
As part of President Ruto's promises during the electoral campaigns, the Sh50 billion kitty was launched in December.
The fund focuses on the youth and those engaged in small businesses and seeks to improve financial access.
Hustler fund has so far loaned out more than Sh 14 billion in under a month. This is an average of close to Sh400 million per day.
Co-operatives and Micro, Small and Medium Enterprises (MSME) Development Cabinet Secretary Simon Chelugui revealed that at least 600,000 transactions are made daily.
Furthermore, at least Sh707 million have been saved since the programme was launched, with 70 percent invested in long-term plans while 30 percent is saved in short term debt plans.
So far, Sh6.3 billion has been repaid, representing over 40 percent of the self-sustainability test.
In a bid to match the competition, Tala said consumers have been drawn to its repayment solutions and growing loan limits.
This is amid high inflation and concerns over the increasing cost of credit from traditional financial institutions.
However, the Central Bank of Kenya (CBK) is confident that the current high cost of living will ease by March.
The inflation rate is expected to drop by 7.5 percent by the end of March.
Kenya's inflation in December dipped to 9.1 percent, still above the bank's target range of 2.5 percent to 7.5 percent.
"With the new increased limits, we hope that parents can now quickly access sizeable school fees loans and get their child settled in class on time," Tala director of growth Annstella Mumbi said.
According to its 2022 Money March report, 78 percent of Tala clients take loans to pay for business expenses or to add stock.
The report also indicated that eight out of every 10 respondents have side hustles other than their main source of income.
