Digital lending opens up access to growth capital

Tuesday, August 11th, 2020 00:00 |
mobile money
Mobile money. Photo/Courtesy
Co-op Bank has announced that it will retain interest rates on outstanding loans following repeal of interest rate cap. PHOTO | COURTESY

Millions of Kenyans can now access microloans within minutes and consistently build-up their credit history that empowers financial inclusion and opens the doors to larger working capital facilities from other financial institutions.

Close to a decade ago, when the country had not embraced digital lending, for those few lucky individuals or small business owners that had a banking relationship, it took an average of three weeks and lots of paperwork changing multiple hands across banking halls before a lending decision was made.

This is a major leap that has opened us to the benefits of automated lending to households, businesses and the general economy.

The Credit Information Sharing (CIS) system is one of the cornerstones of financial inclusion in Kenya and has made it easier for borrowers to access additional growth credit.

It is a testament that a lender can use information from credit bureau score and digital footprint to make superior lending decisions.

This development has also fostered economic growth and helped lower inequality in the country.

Improved credit rating supported by CIS system has over the last couple of years allowed digital lenders such as M-shwari, Tala or Zenka to provide necessary funding to small businesses requiring quick short-term loans to thrive and shield homes from emergency shocks that could potentially slide families deeper into poverty. 

Digital lenders have bridged a gap in offering much needed credit to small businesspeople, who could not access credit because they lacked the credit score or banking history.

Year after year, mobile money deployment has grown faster than any other channel to mirror the increased role of the digitisation of financial services.

In 2019, Central Bank of Kenya (CBK), in draft Kenya Banking Sector Charter compelled commercial banks to increase loans to small businesses by 20 per cent. 

A study on SMEs Competitiveness Report 2019 by the International Trade Centre, Ministry of Trade and Kenya National Chamber of Commerce and Industry shows 33 per cent small traders avoid commercial bank loans despite their need for credit. SMEs represented the high growth in employment creation having scooped 83.6 per cent of the 846,000 jobs created across 2018 as per provisional data from the Kenya National Bureau of Statistics (KEBS).

You can attest that it is now taking Kenyans less to a few minutes to access credit at their own comfort and many people no longer need to travel or physically present paperwork.

With just a tap on your smartphone, you are able to key in crucial data points that allows lenders to rate your credit worthiness. 

The CBK says there are more than 300 million positive transaction records (loans fully repaid by clients), showing a huge population of Kenyans including those without physical bank accounts have greatly benefited from improved access to credit over the years. 

Kenyans will be able to enjoy even better ratings and access to more credit when it will be made obligatory for any lender to check customer’s creditworthiness by pulling real-time and customers’ credit reports from and reporting actual credit history to Credit Bureaus (CRBs). 

Therefore adopting a national credit scoring system that is beneficial for all stakeholders of the financial industry is critical in advancing the next phase of credit rating in the country. 

A 2018, FSD-Kenya, in partnership with the CBK, Kenya National Bureau of Statistics and CGAP phone survey shows casual workers, dependents and formal employees borrow for day-to-day needs.

Similarly, customers who run their own company or farming operation borrow for business purposes while an entrepreneur borrowing for working capital is the single most common use case for digital credit.

It also showed digital credit appeals to younger, highly-educated customers willing to use loans to start a business.

These sets of data are critical to lenders to enhance innovativeness  to ensure many more Kenyans are financially included.  — The writer is the CEO of Zenka Finance

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