Clinic where you can establish credit health status of your SME

If there is one word that banks do not want to hear from your start-up is bad loans and or default. So averse to this risk are the lenders that the traditional credit market has been wired to base loan decisions on security rather than your ability to pay.

As a result, most small and medium enterprises are failing to scale up due to the difficulty in accessing growth finance.

Bad loans in the banking industry ballooned to Sh124.6 billion by June 2015, painting a gloomy picture for the industry whose profitability is slowing down.

The cautious lenders have made it difficult for businesses and individuals applying for loans in what has become their worst worries of late.

With the historic collapse of close to 30 banks between 1980 and 2,000, the Central Bank introduced credit information sharing regime to keep away serial defaulters from banking halls.

Credit information sharing has been changing the lending market with financial institutions sharing both positive and negative records of potential borrowers.

And now, one of the three credit reference bureaus in Kenya is planning to take the scheme to the next level by creating a business clinic where SMEs can be examined and rated on their ability to borrow with a view to smoothing their access to growth finance.

HEALTH REPORT

Metropol Corporation has partnered with local banks to enable small businesses get preferential treatment while seeking loans owing to their pre-assessed borrowing abilities and business health report.

“Our role is to understand your financials and business operations then examine your capability to service loans based on previous, present and future business prospects. We then give a comprehensive report and rating, which you can use while seeking a loan from banks,” Mr Sam Omukoko, Metropol CEO, told Money.

The bureau has since partnered with Equity Bank, Kenya Commercial Bank and Chase Bank in a mutual understanding that customers can be appraised upon their pre-credit rating.

Other lenders have since been approached for the same agreement with proposals in various stages of adoption.

SMEs, who wish to have their businesses examined, may not necessarily be those planning to borrow according to the business approach seen by Money.

The plan by Metropol is expected to cut the time spent in loan appraisal for small businesses, which quite often, involves home visits and chattel registrations.

We want to help SMEs get better turnaround times from the lenders, who will no longer have to take the long route of loan appraisals. The fact that we are doing it from a neutral perspective will also reduce the pressure associated with being appraised for loans by the lenders themselves,” the Metropol boss told Money.

A rating is then given based on the credit risk level of the business with each rating corresponding to an amount the business can service comfortably without straining its cashflow position.

BORROWING HISTORY

The lending will, however, remain at the discretion of the banks, who may be guided by different policies, for example, limitations on first time borrowers and higher amounts for repeat borrowers.

The borrowing history will have been incorporated in the report, opening up the business to the lenders and helping them make an informed credit decision.

SMEs, which employ up to 80 per cent of the country’s workforce and contribute close to 45 per cent to Kenya’s Gross Domestic Product, have been facing numerous cash constraints related to poor access to growth finance.

The difficulty to access loans from the mainstream financial institutions has pushed the businessmen and women to unscrupulous dealers and shylocks whose interest rates are prohibitive and their lending is based on short-term plans.

An Ipsos survey done for the Association of Kenya Credit Providers in May regarding credit information revealed that over 50 per cent of individuals were not aware of the significance of credit information in supporting their access to loans.

Borrowing is a major component of the business world with credit linking the entire value chain from the manufacturers to the consumers.

Manufacturers borrow money to buy raw materials, merchants buy goods on credit from industries and consumers also access goods from the merchants in credit.

Without credit, the process would slow on every level, causing temporary shortages and, worse, labour problems when workers would have to be laid off until money was available to resume business.

The access and availability of credit is what drives SME expansion, upgrade and growth.

COLLATERAL
The stumbling block created by credit providers in Kenya — collateral — can be a big frustration for the businesses that in most cases fail to access the credit after a lengthy appraisal or end up securing money, which is way below their expectations.

“Banks’ caution is understandable because many borrowers present a significant risk of failure to repay loans on time, which in turn compromises their own ability to meet obligations to depositors and other sources of funding,” IPSOS noted in the survey.

The Metropol business pre-scoring, which is meant to give the businessman what to expect in the loan negotiation table, can also be used in tender negotiations as businesses seek to authenticate their abilities.

Metropol has since created agent shops across the country to enable easier reach to those seeking the service which is charged from Sh5,000.

“We have assisted close to 4,000 businesses most of which had no idea about their abilities to access the funds they desperately needed to scale up.

“Others basically use the scoring to size up their future borrowing prospects,” Mr Omukoko said.

The pre-scoring will be yet another attempt to pave the rugged borrowing path for Kenyan businesses that are always forced to go back to the drawing board after banks slap them with unexpected appraisal results or hit the with loan denials as a result of poor credit ratings, most of which they are largely unaware of.