EDITORIAL: SMEs’ loan facility a step in right direction

The newly-launched Central Bank of Kenya-backed loan facility targeting small businesses provides hope for many in the current constricted economic environment.

The loan scheme dubbed “Stawi” will allow micro, small and medium enterprises (MSMEs) to access unsecured loans ranging between Sh30,000 and Sh250,000 from five commercial banks with a repayment period of between one and 12 months.

That the loans will attract an interest of nine percent per annum will come as a relief for many, though it would be prudent for the CBK to consider reducing the additional four percent facility fee to ease the cost for new and struggling businesses.

That said, this facility is a step in the right direction in terms of helping MSMEs out of their current challenges in securing financing. Small businesses have been disadvantaged in their quest to secure lending ever since the country introduced interest rate controls in 2016.

This has since led commercial banks to shy away from lending to individuals and small businesses in favour of government bonds amid claims that they are incapable of correctly pricing customer risk, especially for the MSMEs that tend to carry a higher default rate.

Tellingly, data showed that private sector credit grew by just 3.4 percent in the year to February 2019—by far missing the CBK’S target rate of the 12 to 15 per cent required to support economic progress.

The MSMEs-dedicated Stawi scheme could help address this situation but only if commercial banks stay faithful to their commitment to finance small businesses.

The government remains active in the domestic market and many banks will still face the temptation of sticking to non-risky business with the State. We hope that the Stawi initiative will be practical and will mark the first step in their journey away from their current restrictive lending regime.

MSMEs hold a huge potential in the economy though their contribution remains limited partly due to the challenges they face in acquiring capital for initiatives such as value-addition which boosted their chances of accessing wider markets.