Banks drop CBK’s SME mobile loan deal
- the business daily may reveal that the platform has not issued a single loan for over a year after KCB Bank, Co-operative Bank, Diamond Trust Bank withdrew, leaving only NCBA in the program.
- Lenders cited difficulties in recovering loans for their decision, with small and medium-sized enterprises (SMEs) defaulting on unsecured mobile loans.
- Although Stawi is still operational under NCBA with support staff and a website, the platform does not grant new loans.
Four lenders selected by the Central Bank of Kenya to provide low-cost mobile loans to small businesses under a program dubbed “Stawi” have dropped out of the deal.
the business daily may reveal that the platform has not issued a single loan for over a year after KCB Bank #ticker:KCB, Co-operative Bank #ticker:COOP, Diamond Trust Bank withdrew, leaving only NCBA #ticker: NCBA on the program.
Lenders cited difficulties in recovering loans for their decision, with small and medium-sized enterprises (SMEs) defaulting on unsecured mobile loans. KCB Bank CEO Joshua Oigara said the bank was providing similar loans under the state-backed credit guarantee scheme.
“Why Stawi was not moving so fast is that the agreement we had was that we needed a credit guarantee system to support customers because they were borrowing without collateral, they were borrowers for the first time with no credit history,” Oigara said.
“The credit guarantee system did not exist. When he entered each bank applied separately. For us, we don’t lend on Stawi, we lend on a credit guarantee system. It’s the same product, different name.
Although Stawi is still operational under NCBA with support staff and a website, the platform does not grant new loans.
An operator who is not authorized to speak to the media has confirmed that it has not made loans for more than a year and has no specific timetable for when loans will resume.
The operator said it initially gave loans to around 500 borrowers but had no idea of the repayment rate.
The CBK and NCBA did not respond to our requests.
Mobile loans for small businesses were launched by the central bank and the five lenders in mid-2019 to much fanfare.
CBK Governor Patrick Njoroge led the heads of Commercial Bank of Africa (CBA) and NIC Group, which merged to form NCBA, Cooperative Bank of Kenya, Diamond Trust Bank Kenya and KCB Bank in roadshows through Gikomba in Nairobi, Kondele in Kisumu and Kongowea in Mombasa introduce the product to retailers in these markets.
It was touted as a game-changer, offering quick, annual mobile loans for an interest rate of just 9%.
The product aimed to target companies with turnover between 50,000 and 250,000 shillings, with potential borrowers assessed on the basis of past records and available assets.
The product would give customers access to loans ranging from 30,000 to 250,000 shillings repayable within 1 to 12 months. As no collateral was offered, the banks found the product extremely risky as most companies defaulted.
The NCBA did not disclose the loan amount. But if the 500 borrowers received an average of 100,000 shillings each, they would have withdrawn 50 million shillings from the banks with no collateral or means to recover the loans.
“What Stawi was looking for was a collective scoring model for customers, and then collectively looking at their risk profiles, and then extending it to SMEs. But in reality, Stawi was looking for a credit guarantee system, and we didn’t have it when Stawi launched,” Mr Oigara said.
“My view is that the information has now been passed on to be used for lending by the banks through the credit guarantee scheme. So we don’t need to do Stawi anymore.
A banker who did not want to be named said Stawi was a CBK project although it cost the banks.
He said the CBK was under pressure from the government to make credit affordable for SMEs, but rather than being outspoken about what made credit expensive, it chose to push banks to support Stawi with injections of cash.
“Loans have been issued but there have been no repayments,” the source said.
Mobile loans unlocked money in individual pockets. However, the money is usually short-term, high-interest, and in small proportions, which makes it unsuitable for investing in businesses.
Despite this, Kenyans have always mobilized digital loans for businesses. According to FinAccess Digital Credit Tracker Survey 2017, most digital loans are granted to businesses at 37%, while up to 35% is used to cover day-to-day needs.
Twenty-one percent goes to education, 15 percent to buying airtime, and 7 percent to medical emergencies.
Stawi was meant to replicate the success of individual mobile lending at the enterprise level, leveraging credit scoring based on M-Pesa and M-Shwari transaction data and credit reference bureaus to allow banks to take instant MSME lending decisions.