The Kenyan Treasury will now provide guarantees for the mobile loans given to small scale traders. This is being seen as a move to increase the supply of credit under a plan where the Kenyan government will also pay a portion of the defaulted loans.
Savings and Credit Co-Operative Societies (SACCOs) loans and smartphone based loans will become part of the Credit Guarantee Scheme which is backed by the Kenyan government. Previously only a few small and medium scale businesses were able to gain access to loans backed by the government.
The Kenyan government is now looking to take advantage of the increase demand for mobile loans to improve the credit to the small scale traders. Small scale traders currently make up more than 80 percent of all the businesses in Kenya while also providing 75 percent of the jobs available.
The first phase of the Credit Guarantee Scheme was rolled out in December of 2020 with a total of seven (7) commercial banks in Kenya, getting on board. The Credit Guarantee Scheme intends to reduce the risk to lending to Micro, Small and Medium Enterprises (MSMEs) that have been unable to get credit.
A 3 billion Kenyan Shilling capital was initially allocated to the Credit Guarantee Scheme by the Treasury, in the financial year which ended in June of 2021. Only 634.5 million Kenyan Shillings was made use of by 334 businesses.
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Digital loan providers in Kenya provide credit that is collateral free and fast, to a large portion of unbanked in the country. The digital loan providers have also made it possible for millions of Kenyans to gain access to funds to be able to cater to a number of things like business ventures, school fees and even medical expenses.
Observers also believe that Digital loan providers have improved financial inclusion in Kenya where only around 40 percent of people have a bank account.
The Treasury in Kenya is looking to improve the supply of micro loans backed by the Kenyan government via digital platforms including mobile devices.
The Kenyan Treasury will take care of 25 percent of the credit if said credit or loan gets defaulted on, with a limit of 5 million Kenyan Shillings per borrower and a repayment period of not more than 36 months.
Albert Mwenda who is the Director-General for Budget, Fiscal and Economic Affairs at the Treasury made it known that, “We want to take advantage of the ICT infrastructure that is there amongst the telcos, which are also regulated (to broaden coverage of the scheme). The next coverage will, therefore, include saccos, microfinance institutions and, thereafter, the telcos.”
He added that, “Our expectations (for rollout of the second phase) is within this year, but you see there are those factors such as certain approvals that are beyond us.”
In the current year, around 1 billion Kenyan Shillings has been added to the Credit Guarantee Scheme. This brings the total budget to 4 billion Kenyan Shillings with plans underway to increase the budget to up to 10 billion Kenyan Shillings over the course of the medium term.
Credit Bank, Stanbic, Diamond Trust Bank (DTB) Kenya, KCB Bank Kenya, Absa Bank Kenya PLC, Co-operative Bank of Kenya, and NCBA Bank are the seven (7) banks that were signed up during the first phase of the Credit Guarantee Scheme.
The plan to include the digital lenders in the Credit Guarantee Scheme is coming not longs after President Uhuru Kenyatta approved a change in the law that will now make it possible for the Central Bank of Kenya (CBK) to regulate digital loan providers in Kenya. The change in law will now give the Central Bank of Kenya (CBK) more power to effectively deal with lenders or loan providers who violate the privacy of their users.
What this means is that the Treasury will now have a significantly larger array of Digital Lenders to use for the disbursement of loans under the Credit Guarantee Scheme for Small and Medium-sized businesses.
In 2019 users of digital loan providers like Tala which is backed by Silicon Valley, rose to two (2) million from the 200,000 that was the case in 2016. This is according to the Central Bank of Kenya.
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A significant number of lenders in Kenya were not covered by any of the regulations which existed before December of 2021 when the new law was passed.
Apart from complaints regarding being charged high interest rates, users have made it known that the digital lenders have infringed on their data privacy by spamming individuals on their contact lists with messages and calls whenever they default.
According to Albert Mwenda it was expected that there would be a low uptake of the loans during the first phase of the Credit Guarantee Scheme in Kenya which currently has over seven (7) million Micro, Small and Medium Enterprises (MSMEs).
The Director-General for Budget, Fiscal and Economic Affairs at the Treasury; Albert Mwenda, singled out reduced demand for services and goods as a result of the still ongoing Coronavirus pandemic and the desire to create awareness and increase capacity.
In his words, “Businesses and schools have now opened, while hotels, accommodation and tourism are also picking up. As demand picks, businesses will also respond to that demand.”
He added that, “So demand (for credit) is now high and the information I have is that last December alone, the disbursement was in the upward of Sh400 million. Going forward, it looks like it would get better and better.”
Overtime there have been complaints from Small and Medium businesses regarding a lack of access to credit, and being charged significantly high interest rates because of the fear by lenders that said businesses are too risky.
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