Mobile loans offer SMEs lifeline amid virus crisis

Friday, December 11th, 2020 00:04 | By
Experts say the rise in the popularity of mobile loans could be attributed to the proliferation of digital lenders and effects of the rate caps which was repealed last year. Photo/PD/File

Lewis Njoka @LewisNjoka

Mobile money emerged the most popular source of credit for small and medium enterprises (SMEs) in Kenya amid Covid-19 shocks in 2020, a report shows.

A report by Viffa Consult, a management consultancy,  business profit is the second most popular source of credit for SMEs followed by personal savings, money from family and friends, and Chama loans in that particular order.

SMEs gave banks loans a wide berth emerging as the least popular source of financing this year followed by Sacco loans.

This is the first time since 2017 that mobile money has emerged as the most popular source of financing for SMEs, according to the Viffa Consult report.

According to the report, mobile money has gained popularity steadily among SMEs in the last four years rising from being the seventh most popular source of financing in 2017 to being the most popular in 2020.

Mobile loans

“Mobile money continues to increase its role in SME financing as bank financing remains shaky despite the enactment of the movable property securities rights act that has potential to increase financial inclusion,” reads the report.

Churchill Ogutu, head of research at Genghis Capital said the rise in the popularity of mobile loans could be attributed to the proliferation of digital lenders and effects of the rate caps which was repealed last year.

“This could be due to increase in the number of credit-only lenders who channel their funds through mobile platforms.

It could also be due to issues that happened during the rate-cap period which dis-incentivised banks from lending to SMEs pushing them towards mobile loans,” he said.

However, the popularity of mobile money could soon dip following the launch of a government-backed SME Credit Guarantee Scheme on Tuesday.

Under the scheme, the government will guarantee loans extended to SMEs by some seven commercial banks it has partnered with.

These are KCB Bank, Co-operative Bank, Diamond Trust Bank, Absa, Stanbic, NCBA and Credit Bank.

Under the programme, Sh10 billion will be made available to the mirco, small and medium enterprises (MSMEs) over a period of two financial years, 2020/21 and 2021/2022 with Sh3 billion available immediately. “Introduction and successful implementation of the MSME credit guarantee scheme has potential to anchor banks as a key player in SME financing,” the report said.

About 30 to 40 per cent of the lending by banks in Kenya goes to MSMEs, according to Kenya Bankers Association.

However, the Covid-19 pandemic has hit small businesses hard with 37 per cent MSMEs in Kenya having scaled down since the virus reached Kenya in March.

Viffa Consult notes in the report that many MSMEs dropped below Sh500,000 annual turnover due to the pandemic, causing businesses in the Sh1 to Sh500,000 band to increase contrary to the common trend where MSMEs in all the other bands were decreasing.

“The SME sector turnover performance experienced a great shift with SMEs in the turnover brackets over Sh500,000 to over Sh30 million experiencing a drop in turnover while SMEs with turnover of Sh1 to Sh500,000 experiencing a 33 per cent point increase between the years 2019 and 2020,” reads the report.

The 7.4 million MSMEs in the country play a key role in Kenya’s economic set up employing approximately 14.9 million people and contributing about 40 per cent of the country’s gross domestic product (GDP), according to National Treasury.

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