Five commercial banks have unveiled a Central Bank of Kenya-backed loan facility targeting small businesses.
Micro, small and medium enterprises (Msmes) will be able to access unsecured loan ranging between Sh30,000 and Sh250,000 from the new loan product dubbed “Stawi” through their mobile phones.
The loan has a repayment period of between one and 12 months and an interest of nine per cent per annum.
The other charges to be collected upon disbursement are facility fees of four per cent, insurance cost of 0.7 per cent and an excise duty at 20 per cent of the facility fee.
The facility will initially be managed by Commercial Bank of Africa (CBA), Cooperative Bank of Kenya (Co-op Bank), Diamond Trust Bank Kenya (DTB), KCB Bank Kenya and NIC Group.
The scheme will see good borrowers rewarded with cash based on their borrowing profiles.
“Small and mid-size enterprises are the lifeblood of any economy, but many have struggled to secure the necessary financing to continue operations in the current economic climate,” said CBK governor Patrick Njoroge during the launch of the product at Nairobi’s Gikomba Market on Monday.
“We are excited to work with the five banks to minimise the complexity of developing new and more accessible loan offerings as they bring much-needed capital to this underserved yet vital segment of the market.”
The scheme is one of the CBK’s latest efforts to unlock the credit squeeze.
Borrowers were in March this year spared a rise in the cost of loans after the CBK retained its benchmark rate at 9.0 per cent amid mounting defaults and reduced appetite for lending to individuals and small enterprises by commercial banks.
Kenya introduced interest rate controls in September 2016 with the enactment of a law that limits lending rates to not more than four percentage points above the Central Bank Rate.
This was in response to the high cost of credit that saw banks lend to private businesses and individuals at more than 20 per cent interest.
But the measure has had the effect of stifling the credit market as banks became more cautious in their lending.
Private sector credit grew just 3.4 per cent in the year to February, well below the CBK’S target rate of 12-15 per cent that is needed to support economic development.