Ruto leads push to lower cost of loans
President William Ruto yesterday spelled out a raft of measures to lower the cost of borrowing and which will benefit the citizenry and small businesses.
The reforms are meant to increase financial inclusion for individuals and enterprises that have been locked out from accessing credit by high interest rates and fines on defaults charged on digital loans.
Speaking yesterday at an event where NCBA, KCB and Safaricom announced a 50 per cent reduction in interest rates charged on the Fuliza overdraft facility, Ruto said the joint move by the three institutions was a step in the right direction although more needs to be done to further lower the cost of credit.
The Fuliza overdraft facility was launched in 2019 as a short term product to enable customers complete mobile money transactions in case they had insufficient funds. It has since grown its customer base to 28 million, disbursing an estimated Sh1.5 billion in loans daily.
However, customers have been complaining about the facility’s high interest charges, a matter that featured prominently during campaigns ahead of the August General Election. At the time, Ruto — who was Deputy President — said over four million Kenyans had been denied access to formal loans after being blacklisted by the Credit Reference Bureaus (CRBs) for non-payment of their loans.
As a result of being blacklisted, the President said, many Kenyans had been left at the mercy of shylocks and predatory lenders who exploit them with some charging as much as 1,000 per cent interest for short-term credit.
“You are aware that in the last several months in the campaign, Fuliza was a very popular word and I am happy you were listening and today you have made a very positive statement on matters Fuliza,” President Ruto said yesterday. “Let me appreciate that we are having a conversation about hustlers today and this is very important to me.”
Right trajectory
Ruto said prior to yesterday’s meeting, he was considering a meeting with the three partners to intercede on behalf of “people who cannot make it to your offices” to negotiate on their behalf and achieve a win-win situation.
“Because they cannot find their way to your good offices, they have sent me with instructions to come and speak to you about their issues. I am happy you are already walking on the right trajectory,” he said.
Safaricom chief executive Peter Ndegwa said the three partners had lowered their rates by 50 per cent.
“All customers will enjoy Fuliza free of the daily maintenance fee for transactions below Sh1,000,” Ndegwa said. “They will be exempt from paying the daily maintenance fee for the first three days”.
The move will affect 80 per cent of current Fuliza transactions, enabling lenders to further achieve the Fuliza goal of empowering customers to complete transactions incase of insufficient funds when they are buying goods or paying for services. The move is expected to net three companies more customers because the loan facility will be more affordable.
Both the banks and Safaricom also reduced transactions costs for overdrafts exceeding Sh1,000. As a result, the cost of borrowing between Sh1,000 and Sh70,000 has been reduced by half. However, the Fuliza access fee will be maintained at the current rate across all transactions, including those worth Sh1,000 and below.
“In total, these changes will cumulatively lead to a 50 per cent overall reduction in Fuliza tariffs across board,” said Ndegwa.
President Ruto noted that the measures undertaken by NCBA, KCB and Safaricom will remove between four and five million Kenyans out of the Credit Reference Bureau (CRB) list, even as he assured the CRBs that the government was not against them but wanted their operations streamlined.
“In fact, we support the CRB as a mechanism of instilling financial discipline in our financial sector. What we are asking and I think we have had a long conversation on this — I have had a long conversation with the Central Bank of Kenya (CBK) Governor Patrick Njoroge — we don’t want credit listing to be an all or nothing, in or out engagement. We want credit listing to be a facility that gives everyone a chance to be their best in their own time,” he said.
The President urged the three firms to continuously assess the overdraft facility so that progressively they can move towards a more favourable interest rate regime that gives more Kenyans an opportunity to have flexible arrangements on their financial requirements.
He also revealed that the government will engage the private sector to develop a Micro, Small and Medium Enterprises (MSMEs) product which will enable the common mwananchi, including boda boda riders and mama mboga to access credit at single digit rates, with the government acting as guarantor.
Banks, as well as their regulator, CBK, were challenged to consider reducing their rates further and consider loaning to key utilities like Saccos at single digit rates while also encouraging a savings culture.
“I am willing to work with you in a Public Private Partnership arrangement to mitigate some of the risks that come with lending to that category of Kenyans. We are ready to commit public resources to underwrite some of the risks so that chamas, co-ops, Saccos can access credit at single digit interest rates,” he said.
Stock exchange
The government is currently working with among others, the National Social Security Fund (NSSF) and other financial instruments as part of a campaign to improve national savings from the current rate to 10 per cent of Gross Domestic Product (GDP) to between 22 and 25 per cent.
Ruto said the move would spur economic activities of many of MSMEs, which are currently struggling, not because their enterprises cannot do well, but because they are limited by access to credit and financing of what they want to do.
The stock exchange is another source of raising resources that he said, can help build Kenyan enterprises.
“That is why I have created the Ministry of Trade, Investment and Industry so that we can look much more closely at the financial markets and work closely with State-owned enterprises, so that we can share the profits and we can release some resources for us to be able to deliver on some of our infrastructure requirements instead of borrowing either from the market locally or external market,” he said.
