The Central Bank of Kenya said five Kenyan banks have launched a lending service via mobile phone aimed at getting credit through to the Small and Medium-sized (SMEs) businesses.
Since the government capped commercial lending rates at four percentage points above the central bank rate in September 2016, private sector credit growth has been sluggish.
Lawmakers supported the initiative in a bid to address high rates, but this has led to a private credit squeeze, with banks saying the move forced them to cut back on loans to high-risk groups. Also, pressure on banks to use mobile channels to cut costs has increased since the government capped rates, crimping their profit margins.
Kenyan lenders have also been turning to technology in response to competition from mobile phone-based services such as Safaricom’s M-Pesa. Safaricom says default rates on its platform are in the single digits.
Through the new pilot SME lending service, KCB Bank Kenya, Commercial Bank of Africa Limited (CBA), Cooperative Bank of Kenya, Diamond Trust Bank and NIC Group are targeting 3,500 businesses.
According to the central bank, they will be offered unsecured loans between 30,000 Kenyan shillings ($297) and 250,000 Kenyan shillings with a repayment period of between one and 12 months that attracts an interest rate of 9 percent per annum.
The central bank said “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 borrowed has been repaid or track record of three months’ repayment”.
Kenya’s central bank did not say how much money had gone into the pilot for the scheme, but said that another 10,000 businesses will be enrolled for the second phase of testing.