Banks to develop more innovative SME funding

Habil Olaka, CEO Kenya Bankers Association. FILE PHOTO | NMG

What you need to know:

  • Small and medium-sized enterprises (SMEs) remain a pivotal economic growth engine for the country.
  • In Kenya, SMEs create 30 percent of the jobs annually and contribute 34 percent to Kenya’s GDP.

Small and medium-sized enterprises (SMEs) remain a pivotal economic growth engine for the country. In Kenya, SMEs create 30 percent of the jobs annually and contribute 34 percent to Kenya’s GDP. By their constitution, enterprise and industry, they stimulate value addition and employment, thus ultimately leading to industrialisation and economic development. They are, therefore, our country’s single-most important economic pillar for spurring tangible, transferrable and innovative growth among the populace.

However, SMEs are now greatly constrained due to the effects of the Covid-19 pandemic. As the outbreak continues to weight on the country’s growth outlook, SMEs are facing cash flow challenges like never before. Compounded with their inability to access affordable credit, a significant number of them are now at risk of closure which will inevitably lead to mass layoffs.

It’s commendable that the Central Bank of Kenya has recently introduced a raft of measures to cushion SMEs from the current health crisis. These include reducing the Cash Reserve Ratio (CRR) to 4.25 percent enabling the release of Sh 35.2 Billion for banks to support businesses amid the pandemic.

So far, banks have waived mobile transaction fees and have agreed to restructure existing debts to support customers that are unable to service their loans. Banks are also collectively raising financial resources to go towards the government's National Covid-19 Emergency Response Fund. In addition, listing of SMEs by financial institutions in the Credit Reference Bureaus (CRBs) has been temporarily suspended in consideration of their current financial predicament.

By their nature, SMEs are limited in terms of financial muscle and are therefore continuously seeking financing solutions to augment their capital base and existing resources even in the midst of the pandemic. It’s good that banks prior to the outbreak had invested heavily in the Inuka Enterprise Programme which has been designed to de-risk SMEs to enable them to access finance. Run by Kenya Bankers Association, the programme has also enabled businesses to formalise and optimise their operations.

While there have been positive developments in establishing capacity building programmes to support the growth of SMEs in the last few years, there has been considerable enhancement in product innovation in the SME finance space. Stawi, the mobile-based loan platform for SMEs – which is specifically aimed at helping SMEs grow their businesses – is such an innovation for the entire sector which, I believe, will go a long way towards SMEs’ access to affordable credit.

Stawi offers unsecured loans from Sh30,000 to Sh250,000 with repayment periods of between 1 month to 12 months at an interest rate of nine percent per year. When compared with other mobile based loans, the product is competitively priced, offering the lowest mobile loan cost for SMEs in the country.

This is a great step in the right direction and individual banks have continued to proceed to customise their products and services through leveraging on cutting-edge ICT innovations.

This is particularly useful as the majority of the Kenyan populace is young, vibrant and tech-savvy; and living in the digital, fast-paced age where speed, credibility and transparency are essential to spur growth and development.

In its October 2019 report, Securing Future Growth – Policies to support Kenya’s Digital Transformation, the World Bank notes that “the digital economy is propelling Kenya’s economic growth, driven by mobile telephony, rising internet usage and uptake of e-commerce and digital services.”

It goes on to add that “access to financial services has enabled Kenyans to alter their production and employment choices, thereby helping them transition out of poverty.”

It behoves stakeholders in the financial services sector, then, to leverage this space to provide smart and innovative solutions that will help SMEs access credit at favourable rates even during this unprecedented health crisis. Working with key stakeholders like the Government of Kenya, the banking sector can then formulate financial technology policies and solutions that will safeguard SMEs and help them to grow further.

In a rapidly changing financial landscape, we cannot afford to be complacent. Technology is transforming fast, and with it, we must also transform our value proposition to our SMEs with innovative financing that is in tandem with modern needs.

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