Kenya is deploying mobile lending initiatives in an effort to address the small business credit gap.
Reports in Reuters on Monday (May 20) said five banks in the country are collaborating on a mobile lending solution to address the credit squeeze on small businesses resulting from government caps on lending rates. The effort to lower rates has caused some banks to pull back on high-risk small business lending, the industry has said, according to reports.
In an effort to revitalize small business lending and compete with industry newcomers like M-Pesa, KCB Bank Kenya, Commercial Bank of Africa Limited, Cooperative Bank of Kenya, Diamond Trust Bank and NIC Group have joined together to introduce the mobile lending service that offers financing to small businesses with an interest rate of 9 percent per year.
According to the nation’s central bank, “customers will be scored and advised of their credit limit. Additionally, they are eligible for a top-up functionality once 80 percent of the loan borrowers has been repaid or track record of three months’ payment.”
The initiative has completed its pilot testing and will add an additional 10,000 small businesses into the second phase of its testing, reports said.
M-Pesa is part of a growing community of FinTechs in Kenya and elsewhere in Africa turning to the mobile device to facilitate financing to consumers and small businesses. Its industry dominance so far has challenged other financial heavyweights like Visa to step into the mobile payments and financing arena in the country.
Last year Visa launched a partnership with Branch International, an alternative small business lender, to broaden its small business financing reach and disburse funds via business owners’ phones.
That surge in mobile lending has also led the nation’s National Treasury to take note of soaring interest rates.
“We have a lot of predatory lending out there, which we want to regulate,” Geoffrey Mwau, the treasurer’s director general of budget, fiscal and economic affairs, said in an interview with Reuters last year.