The Central Bank of Kenya has launched a pilot credit facility targeting informal unbanked traders in partnership with local institutions. This will be through an app, marketed under the name “Stawi”, that will initially be managed by five banks – Commercial Bank of Africa, Cooperative Bank, Diamond Trust, KCB Bank and NIC Group.
We are back in Gikomba! Delighted to be at ground zero of the transformation in MSMEs financing! pic.twitter.com/R0L3dkAChM
— Patrick Njoroge (@njorogep) May 20, 2019
The pilot phase lasts two weeks and will involve 3,500 traders without bank accounts, who have turnover of Kshs 30,000 to Kshs 250,000 (~$2,500) per month and who are at least six months old. To register, besides providing their ID details, traders will need a valid business permit and an email address to create an account – this is an unusual as mobile apps just require a national ID number to match with the phone number of the loan applicant.
Under the leadership of the CBK Governor @njorogep, DTB joined hands with four other banks to provide a mobile based lending solution known as Stawi. Stawi, which we piloted today at Gikomba market, seeks to address the financing challenges MSME's in Kenya face. pic.twitter.com/lxKCWjpF7T
— DTB Kenya (@DTBKenya) May 20, 2019
The businesses will be able to borrow between loans of Kshs 30,000 to 250,000 (~$2,500). Loan charges are at an interest of 9% per annum, plus a facility fee of 4%, insurance fee of 0.7% and excise tax on the facility fee – all adding up to about 14.5%.
"We saw an opportunity to offer neglected yet viable Kenyan-based business additional financing options to continue day-to-day operations, and provide additional capital to maintain and establish long term growth,” KCB Group CEO @JoshuaOigara during the launch of Stawi. pic.twitter.com/TBveQkfYv4
— KCB Group (@KCBGroup) May 20, 2019
Other features of Stawi:
- Loans are repayable between 1 – 12 month and borrowers can top up loans once 80% has been repaid. Loans are only disbursed through the app as will all repayments be done.
- The loan rates are not cheap, but they are mild, and this program is targeted at the unregulated lenders who charge as much as 300% p.a. There was a draft financial markets conduct bill formulated to protect consumers from such practices.
- There are also transfer fees and Stawi customers can also link up with Pesalink which allows much greater daily transfer amounts (up to Kshs 1 million) than the mobile money wallets.
- For now, there is no Stawi in the Google store as the program is still in a test phase. (There is an app called Stawika that has no affiliation)
- A second round of the pilot will target 10,000 other traders.
— NIC Bank (@nicbankkenya) May 20, 2019
While trying to forestall the arrival of interest rate caps back in 2016, banks, through their umbrella Kenya Bankers Association committed to set aside Kshs 30 billion for lending to SME’s including Kshs 10 billion to micro-enterprises owned by women and youth and lend to them at no more than 14%. They also committed to rank borrowers by high, medium and low risk and to work to reward low-risk borrowers with low-interest rates. To date, the credit reference bureaus piling up data on loan defaulters which good borrowing records are ignored or not rewarded with lower interest rates.