Four lenders selected by the Central Bank of Kenya to give low-cost mobile loans to small businesses under a programme dubbed ‘Stawi’ have abandoned the deal.
The Business Daily can reveal the platform has not issued a single loan for over a year after KCB Bank #ticker:KCB , Co-operative Bank #ticker:COOP , Diamond Trust Bank pulled out, leaving only NCBA #ticker:NCBA on the programme.
The lenders have cited difficulties recovering the loans for their decision, with the small and medium enterprises (SMEs) defaulting on the unsecured mobile-based loans. KCB Bank CEO Joshua Oigara said the bank was issuing similar loans under the State-backed credit guarantee scheme.
“Why Stawi wasn’t moving as fast is that the agreement we had is that we needed a credit guarantee scheme to support the customers because they were borrowing without security, they were first-time borrowers with no credit history,” Mr Oigara said.
“The credit guarantee scheme did not exist. When it came in each bank applied separately. For us, we are not lending on Stawi, we are lending on a credit guarantee scheme. It’s the same product, different name.”
While Stawi is still operational under NCBA with support staff and a website, the platform is not issuing new loans.
An operator who is not authorised to speak to the media confirmed they had not issued loans for over a year and have no clear timelines when they will resume lending.
The operator said they had initially issued loans to about 500 borrowers but had no idea what the rate of repayment was.
The CBK and NCBA did not respond to our inquiries.
The mobile loans for small businesses was launched by the central bank and the five lenders mid-2019 with fanfare.
CBK Governor Patrick Njoroge led executives of Commercial Bank of Africa (CBA) and NIC Group, which merged to form NCBA, Cooperative Bank of Kenya, Diamond Trust Bank Kenya, and KCB Bank in roadshows through Gikomba in Nairobi, Kondele in Kisumu and Kongowea in Mombasa pitching the product to retailers in those markets.
It was touted as a game-changer, offering quick and annual mobile loans for only nine percent interest rate.
The product was to target businesses with a turnover of between Sh50,000 and sh250,000, with prospective borrowers assessed on past records and available assets.
The product would give customers access to loans of between Sh30,000 to 250,000 payable within one to 12 months. Since no collateral was offered the banks found the product extremely risky as most of the businesses defaulted.
NCBA has not disclosed how much money was lent out. But if the 500 borrowers received an average of Sh100,000 each they would have taken away Sh50 million from banks without collateral or a means of recovering the loans.
“What Stawi was looking for was a collective scoring model for customers and then looking at their risk profiles collectively, and then extend it to the SMEs. But in reality, Stawi was looking for a credit guarantee scheme, and we did not have it when Stawi was launched,” Mr Oigara said.
“My view is that information has now been passed on to be used for lending by banks through the credit guarantee scheme. So we no longer need to do Stawi now.”
A banker who did not want to be named said Stawi was a CBK project though it cost banks.
He said the CBK was under pressure from the government to make credit affordable to SMEs but rather than be candid on what was making credit expensive it chose to push banks to support Stawi through cash injections.
“Loans were issued but there was no repayment,” the source said.
Mobile-based lending has unlocked cash into individual pockets. However, the money is usually short-term, high interest and in small proportions, making it unsuitable for investment in businesses.
Despite this, Kenyans still mobilised digital loans for business. According to FinAccess Digital Credit Tracker Survey 2017, most digital loans go to business at 37 percent while up to 35 percent are used to cover day-to-day needs.
Twenty-one percent goes towards education, 15 percent to buying airtime and seven percent to medical emergencies.
Stawi was meant to replicate the success of individual mobile loans at a business level, leveraging credit scoring based on data from M-Pesa and M-Shwari transactions and credit reference bureaus to enable banks to make instant lending decisions on MSMEs.