Co-op Bank says it will leverage its relationships in the co-operative movement to support the rollout of the State’s Sh50 billion hustler fund, which will offer soft loans to small enterprises.
President William Ruto’s administration has committed to providing loans to small firms such as motorcycle transport operators and women-owned ventures at single-digit interest rates without collateral.
Most of the advances are set to be distributed through savings and credit co-operative societies (saccos), which have complementary and synergistic ties to Co-op bank. The hustler fund is expected to be implemented in the current quarter ending December.
“We are all set for the key challenges you have set for us to further deepen this sector your excellency,” Co-op Bank’s chief executive Gideon Muriuki said at a capital markets event last week that was attended by the President. “The saccos structure meets the requirements of successfully handling the hustler fund in terms of financial access, traceability, inclusivity, affordability and overall sustainability of the fund,” he said.
Mr Muriuki said that Co-op bank is ready to provide saccos with its lending models to help the thrift institutions manage credit risk better.
The Nairobi Securities Exchange-listed lender is the primary banker for saccos in Kenya. The saccos, in turn, own a majority 64.56 percent stake in Co-op bank through their investment vehicle Co-op Holdings Co-operative Society Limited.
The lender has integrated technology linking it with saccos and their members including its mobile banking platform MCo-op Cash.
It has also been supporting capacity building in the sacco sector for over a decade through an in-house team of advisors. Saccos have over 13 million members, representing people engaged in diverse economic activities including formal employment and ventures in farming, retail and public transport.
The hustler fund seeks to bankroll start-ups and small businesses that have traditionally struggled to access medium to long-term loans from banks without collateral.
Saccos typically issue loans at interest rates starting from 12 percent per annum, with the borrower providing guarantees from other members to cover the amounts they have taken above their savings. They will be expected to issue the hustler loans at single-digit interest rates as the government aims to lower the cost of credit for small businesses.
Kenya has more than 22,000 saccos spread across the country. Some 550 of the institutions have banking sections –known as front office services activity (FOSA)— through which they offer loans and fixed deposit accounts among others.
The government has said five percent of the hustler fund, amounting to Sh2.5 billion per annum, will be set aside to finance local technology startups. There will also be specific allocations for special groups such as persons with disabilities.
The government plans to leverage the hustler fund to finance the nascent electric motorcycle assembly industry in anticipation of the transition to clean transport.