• Monthly total interests for Stawi loans much higher compared to M-Swari and KCB M-Pesa
• Economist David Ndii said the credit product is exploitative and is meant to earn huge profits for private banks
Image: COURTESY
Civil rights groups yesterday said the mobile loan recently rolled out by the government and five banks for smaller businesses is exploitative and part of state capture by the private sector.
The state-subsidised product called Stawi is expected to give customers access to unsecured loans ranging from Sh30,000 to Sh250,000, with repayment periods of between one and 12 months. Beneficiaries will repay it with an interest of nine percent per annum.
Civil society accused the government of deceiving the public on the true cost of credit for the product. Economist David Ndii said the credit product is exploitative and is meant to earn huge profits for private banks, some owned by highly placed individuals in the current administration.
He spoke during the launch of a report titled 'State Capture' by the Africa Centre for Open Governance (afriCog).
On Monday, CBK governor Patrick Njoroge described it as revolutionary, saying it will make credit accessible and affordable to traders at the base of the economic pyramid. He spoke during the pilot launch of the product in Nairobi’s Gikomba market.
"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 credit will be managed by the Cooperative Bank of Kenya, Diamond Trust Bank, KCB, CBA and NIC.
President Uhuru Kenyatta’s family is associated with the CBA, which is set to merge with the NIC Group.
"Small business players are known to borrow on short terms. The CBK is deliberately avoiding to disclose other fees in the loan that will see borrowers charged an annual percentage rate (APR) of 75 per cent per month," Ndii said.
Besides a fixed annual interest of nine per cent, borrowers will be charged a facility fee of four per cent, insurance cover of 0.7 per cent and excise duty of 20 per cent of total fees, bringing the annual rate to 14.5 per cent.
Borrowing the minimum of Sh30,000 for a month attracts an interest of 2.25 per cent, which, when added to other fees, adds to Sh2,325. This goes up to Sh4,350 if borrowed for 12 months. It is higher than Safaricom’s M-Shwari whose total interest per month for the same amount is Sh2,250 and even much higher than KCB M-Pesa, which charges a total interest of 4.08 per cent per month, translating into Sh1,224.
Stawi’s charges are, however, lower than Tala and Branch, which charge an average of 15 per cent per month or an APR of 180 per cent.
Ndii said the interest charged is way above 13 per cent limit in the current interest cap regime that holds bank interest rates at four per cent above Central Bank rate, which is now at nine per cent.
"Why is the government using public funds and resources to subsidise and market a credit product meant to exploit Kenyans? The Stawi product will give undue competition to other products in the market," he said.
Ndii has been a fierce critic of the Uhuru administration. He covered the loan product in an opinion piece published by The Elephant, linking it to the ongoing Huduma Namba registration that seeks to integrate peoples’ data into the National Integrated Identity Management System.
Ndii says the product, which was designed in February as Wezesha, was to ride on Huduma namba data to profile borrowers. It was also to use the integrated network of Huduma Centres for marketing and registration purposes.
The Wezesha prospectus seen by the Star says piloting of the product was to be launched on April 30 in Gikomba in a similar fashion Stawi was introduced on Monday.
The full launch was slated for June 30 to be followed by the introduction of customer Credit Passport in October.