Shift to fintech for SMEs loans timely – Business Daily
Financial technology concept. PHOTO | SHUTTERSTOCK
A strategy to use fintechs to disburse cheaper loans to small traders at single-digit interest rates, under the Sh250 billion ‘Hustlers Fund’, has the potential to enhance financial access to millions of Kenyans who have been locked out of the formal banking system.
It reflects a policy shift from systems that have relied on commercial banks to disburse State-backed affirmative action funds.
Besides coming with cheaper administrative costs, the new fund will build on already existing digital credit appraisal systems to disburse loans by the minute and eliminate the need for borrowers to visit banking halls.
With swift adoption of mobile innovations in Kenya following success of Safaricom’s M-Pesa, such a shift could be just what the country needs to accelerate credit reach to the informal sector, which accounts for the bulk of jobs in Kenya.
As the new Cabinet moves to actualise the Hustlers Fund through fintechs, they must however learn from past mistakes of the Youth and Women funds, which were grounded by high default rates.
This is also why reforming how credit reference bureaus scores defaulters must be prioritised to anchor the Hustlers Fund, and ensure the plan to advance concessional loans to SMEs that have struggled to access financing from mainstream banks succeeds. It will also prevent it from following in the footsteps of previous funds, which ended up in controversy.
The State must find a way of dealing firmly with the lure of some borrowers who take government-funded loans and default since there is no major consequence for defaulters.
