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Digital space key to post Covid recovery – CBK governor

Patrick Njoroge has called for financing of SMEs to help them recover.

In Summary

•The International Finance Corporation estimates a financing gap of $5.2 trillion ( about Sh 563.732 trillion) in developing countries alone.

•Kenya has come up with a Credit Guarantee Scheme with an initial seed capital of Sh10 billion to enhance access to credit.

CBK governor Patrick Njoroge giving his keynote address at the Copenhagen Fintech Week Global 2020/COURTESY
CBK governor Patrick Njoroge giving his keynote address at the Copenhagen Fintech Week Global 2020/COURTESY

Digitisation of financial services will be key in post-Covid-19 recovery of global economies, says Central Bank governor Patrick Njoroge.

He said focus should be given to Small and Medium-Sized Enterprises (SMEs), noting the segment is faces a significant financing gap.

The International Finance Corporation estimates a financing gap of $5.2 trillion ( about Sh 563.732 trillion) in developing countries alone.

 
 

“With the devastation wrought by Covid-19 on SMEs, we expect that this gap has widened,” Njoroge said when he addressed the Copenhagen fintech week global 2020.

He said SMEs are at the heart of the global economy, providing jobs and supporting livelihoods for the majority of the population, adding that thriving SMEs underpin the achievement of the Sustainable Development Goals agenda.

Njoroge had in May cautioned that at least 75 per cent of SMEs in Kenya faced closure by end of June due to lack of funds, calling for an urgent move to cushion them as they contribute hugely to the country's employment and GDP.

Statistical data estimates that Kenya’s MSMEs contribute approximately 40 per cent of the GDP with the majority falling in the informal sector.

A survey by the United Nations Capital Development Fund (UNCDF), the International Chamber of Commerce (ICC) among others institutions indicated about 33.9 per cent of SMEs can remain open for less than three months under the current circumstances

 

To support SMEs in the country, the government has come up with a Credit Guarantee Scheme to enhance access to credit.

Approved by the Cabinet, the scheme has an initial seed capital of Sh10 billion.

This will be capitalized in two tranches of Sh5 billion in financial year 2020/21 and financial year 2021/22.

“The State’s contributions are expected to be followed by contributions from development finance institutions and participating commercial financial institutions, which are expected to boost the finding for the scheme to at least Sh100 billion,” the Executive Office of the President said in a release.

It will go a long way in cushioning the small businesses which Njoroge had predicted that up to eight out of every 10 businesses, faced closure.

“As we bring back our SMEs to life, digital practices will be core,” Njoroge said at the Copenhagen event.

He notes there has been an increased use of digital lending to SMEs based on business transaction histories, alternative data from mobile phones and other government public records.

This has been supported by among others, the “Stawi” platform by a consortium of five banks local banks, which offers customers 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.

“Stawi ‘provides anytime anywhere’ financing to MSMEs and will be a powerful weapon in our arsenal as we reimagine the post-Covid posture of our MSMEs,” Njoroge said.

The digital space is expected to drive bank transactions in Kenya going forward with CBK data showing that before the pandemic, about 90 per cent of bank transactions were conducted outside branches.

Since the onset of the pandemic, this has accelerated to over 94 per cent of transactions.

Most notably, over 67 per cent of transactions are now conducted on mobile phones, up from 55 per cent before the pandemic.

Meanwhile, Njoroge has outlined a number of barriers and risks associated with digital financing, a mong them being the fact that over 700 million people still lack access to mobile broadband and over 3 billion lack effective digital access due to affordability and skills gaps, with women disproportionately excluded.

As the world increasingly relies on digital 6 financing, there are risks of a loss of privacy, increased cyber risks and market concentration, Njoroge added.

“Seizing the opportunities and addressing barriers and risks requires concerted action from policy makers, regulators, private sector, international development community, and civil society organizations,” he said.

According to Njoroge, investments are needed in universal, accessible, affordable and secure digital infrastructure.