Step aside Fintechies,banks re-enter SME lending
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| Dr. James Mwangi: EquityBank Group CEO |
Equity Bank group shot the first volley: It set aside US$1.5 billion to lend to the sector of the economy at 13 percent per annum probably through its EAZZy app.
Soon thereafter, a consortium of five indigenous banks launched Stawi, a mobile
phone app to lend to the sector amounts ranging from US$300 to $2,500. The consortium targets some 10,000 applicants
this year, which means that at least an additional US$25 million is available
for the SMEs to borrow.
It is not clear how
much Equity will lend per customer, but given the size of its war chest, it
could lend more.
The consortium includes; Commercial Bank of Africa, the Cooperative Bank of Kenya,
Diamond Trust Bank Kenya Limited, KCB Bank Limited and NIC Group. Some are among the largest banks in the
country. KCB is the leader in terms of assets followed by Equity Bank and Co-op
Bank. However, Co-op Bank will soon lose
the third slot to NIC/CBA once the two banks merge. KCB is also gunning to buy
National Bank of Kenya, thus maintaining its lead.
The shift marks the
end of the two-year credit drought SMEs have suffered since the introduction of
interest rates caps in 2016. The move, which saw banks turn to lend the
government and high worth clients also cost them in terms of income. However,
now that Treasury Bonds are becoming unattractive given their declining yields,
commercial banks now have to turn to the real economy for business.
SMEs are the largest
employers in the country and also drivers of economic growth. Most SMEs
fall under the informal sector and by extension, the term informal refers to
people in self-employment or small-scale industries. The informal sector is
estimated to constitute 98 percent of business in Kenya, contributing 30
percent of jobs and 3 percent of Kenya’s GDP.
That is the real sector of the economy! And
starving it of credit is a recipe for an unequal distribution of the benefits
of economic growth. The Kenyan economy has posted robust growth rates in the
last decade, hovering around 5.5 percent.
This has pushed the real income per capita to US$1895 last year.
However, the population living in absolute poverty is still in the double
digits largely due to the slow-down in the growth of the informal sector.
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| Joshua Oigara: KCB Group CEO |
The dearth of bank
credit has seen the rise of fintechies, mobile phone loan apps that lend small amounts
($50-100) to small business and households. Now with the shift in policy
towards lending this sector with a longer tenor and low-interest rates, the commercial banking industry has set the stage for price wars with the techies.
The apps use the
Mobile phone platforms to lend. They Include Tala, M-shwari, KCB-MPesa,
Branch international among others. Except for KCB M-Pesa, the others are
extremely expensive.
So the commercial
banks, by easing the conditions of their loans and lowering interest rates, are headed
for greener pastures.
Although still
conservative, the shift to lending to SMEs, could proof lucrative for the
banking industry- and the economy. Credit to the private sector, according to the Central Bank of Kenya by
3.4 percent in the 12 months to February, way below the 12 to 15 percent level
which deemed ideal to spur robust economic growth. Credit to the SMEs is a
hanging fruit! They need not worry about defaults the default rate is still
low.
Safaricom’s Fuliza, a form of an overdraft
facility, which has been around for a few months, lend the equivalent of US$36
million in the first month of operation. That is more than the stawi app plans to lend
this year. This is a pointer to the high demand for credit in the country
The fintechies lend
for just about a month at exorbitant rates of more than 10 percent. This
tenor is not supportive of business growth for it does not generate profits. It
just generates enough to pay the loan and interest, leaving the investor with
nothing to write home about. That has seen the number of defaults increase
because they are just shylocks on Mobile apps. Shylocks are generally spurned
attracting only the desperate cases.
But with banks now
offering unsecured loans, uptake is likely to shoot through the roof as
Fintechies witness a decline in business. The longer tenor and low interest
rate is the magnet to attract SMEs whose major hurdle with bank loans was
lack of securities to offer.
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