Involve digital lenders in response to Covid-19 effects
Wambui Waweru
One of the top worries among Kenyans as Covid-19 ravages the world has been how to cope financially, with businesses bearing the brunt of the pandemic.
Not much though has been given to digital lenders, which have the capacity to finance the economy with short-term credits during this crisis.
The lenders are frontrunners in digital credit revolution and I believe the current circumstances require us to be more present and more agile to ensure low-income earners and the unbanked populations stay afloat.
Since the emergence and rise in popularity of mobile loans, we have seen many small businesses grow, improved incomes and reduction in poverty rates through easier access to credit.
Loans offered through mobile apps have made it easy for many to access emergency funds without the bureaucracies associated with the mainstream lenders.
It is, however, disheartening to learn that over Sh50 billion in cash meant for onward lending is lying idle in banks.
Small businesses that support low-income families are struggling to survive with low sales because of current limited movement and other measures put in place to tame the spread of the coronavirus.
They must pay rent, levies and turnover taxes for businesses with annual revenues of below Sh5 million.
These expenses and lack of enough credit to support such ventures forces them to contend with losses on account of reduced working hours and a controlled traffic in compliance with State directives.
Such challenges can potentially push millions of people dependent on these businesses further into poverty and make them susceptible to the effects of coronavirus.
The 2019 FinAccess Report released by Kenya National Bureau of Statistics and Central Bank of Kenya indicates that an average six million Kenyans have access to credit from a digital lender.
Top on the list of most customers has been towards the support of business (37 per cent), day to day activities (35 per cent), education (20 per cent), pay bills and buy household goods (10 per cent) and tend to medical emergencies (seven per cent).
The current situation calls for sustained access to small ticket credit facilities averaging Sh5,000 that businesses and households can easily manage to repay quickly.
These amount may appear insignificant but they can save a life by allowing one to buy medicine in an emergency situation, pay utility bills or help a small trader stock up.
At an average of Sh5,000 in creditcan make a whole lot of difference for many small businesses and households.
Such a model allows the country to maintain inclusive economic activities by supporting smaller projects with higher and immediate impact on livelihoods.
It also underscores the strategic role of digital lenders in supporting the informal sector, the biggest contributor to the country’s economy.
Since the business proposition of digital lenders is normally short term-credit facilities to meet smaller urgent needs, they can support millions of underserved households.
With an understanding that digital credits have a completely different purpose and usability compared to bank loans, it will therefore be prudent for the government to find avenues where digital lenders can access the vault for onward lending as has been the case in the US, UK and Europe, where digital lending companies have been fully engaged by governments to streamline public stimulus funds.
In light of the above, Central Bank should consider offering idle cash as credit to digital lenders. —The writer is a Financial and Risk Management consultant at Marlite Consultants
