Is Stawi Kenya’s biggest informal banks’ merger?

Micro, small and medium scale enterprises (MSMEs) in Kenya are the target of a pilot phase of a mobile loan product led by Keny’s biggest five commercial banks.

Launched by Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge, the scheme targeting MSMEs comes after President Uhuru Kenyatta said he recognised the role played by MSMEs in spurring the development of the country.

“The sector, employs approximately 14.9 million Kenyans and contributes an estimated 28 per cent of our Gross Domestic Product,” said Kenyatta during his State of the Nation Address on April 4, 2019.

The mobile-based credit scheme is set to improve access to credit for small-to-midsize enterprises, which have allegedly been locked out of the formal credit market because of the informal nature of their records and lack of collateral for secured loans.

Kenyatta family rip-off plan?

Christened Stawi, the scheme will be managed by five banks – Commercial Bank of Africa Limited (CBA) which is owned by the Kenyatta family, the Cooperative Bank of Kenya Limited, Diamond Trust Bank Kenya Limited (DTB), KCB Bank (Kenya) Limited and NIC Group PLC which was recently acquired by the Kenyatta family.

Customers will access the loan through a mobile phone application. The money will then be credited to the customer wallet.

“Stawi offers unsecured loan products ranging from KShs30,000 up to KShs250,000 with repayment profiles of 1-12 months, at an interest of 9 per cent per annum,” reads a statement sent to newsrooms after the launch of the scheme.

However, Economist David Ndii has dismissed this as a loan-sharking scheme with hidden charges that the customers do not know of upfront.

While access to credit services from established and traditional financial organizations has been a challenge for a lot of informal and small businesses, it is an issue that has however been managed using third-party options like fintech apps that have flooded the credit space.

These fintechs do not require collateral to offer loans but their charges are exorbitant. Despite this reality, Kenyans have been borrowing from them with many being blacklisted for defaulting while a few others have improved their credit scores over time.

Customers will be scored and advised of their credit limit. Additionally, they are eligible for a top-up functionality once 80 per cent of the loan borrowed has been repaid or track record of three months’ repayment.

From Wezesha to Stawi

On April 2, Ndii wrote about the scheme which was then known as Wezesha. He said, “This story is about an even more audacious scheme in the Kenyatta Empire’s “expansion drive”.

He quoted a document titled ‘Restoring Credit Access to Micro and Small Sized Businesses’ which he said was shared by whistleblowers in institutions that had been corralled into the scheme by force.

“The name of the scheme is Wezesha (‘enable’). It is a proposed mobile phone lending platform described as a “collaborative initiative to bridge the access to credit by micro and small enterprises,” wrote Ndii in the Elephant.

Interestingly, the only thing that has changed is the scheme name from Wezesha to Stawi.

Activations were to be conducted in Gikomba, Marikiti, Kondele and Karatina.

Speaking during the launch at Gikomba Market, the CBK Governor said that Stawi responds to the unique financing needs of MSMEs.

He also emphasised that the sector is vital to the Kenyan economy, and the product could not have been launched at a more opportune time.

“Until now, lending to MSMEs has been constrained by the lack of reliable information to assess their creditworthiness. The innovation in this product is the use of all data on customers’ transactions to fill this gap. In that sense it is revolutionary,” said Dr Njoroge.

5 million opt-ins and 2 million active users

He added that the cooperation between the five banks will allow them to reach out to a growing number of small enterprises, promoting job creation and income generation with a multiplier effect on the economy.

“Small and mid-size enterprises are the lifeblood of any economy, but many have struggled to secure the necessary financing to continue operations in the current economic climate,” said Dr Njoroge.

“We are excited to work with the five banks to minimize the complexity of developing new and more accessible loan offerings as they bring much-needed capital to this underserved yet vital segment of the market.”

The pilot phase will be two weeks involving 3,500 traders in the MSME sector while the second roll-out will be to 10,000 traders, who will be registered by Stawi agents. These traders will be involved in the second round of tests for the app.

As per the original plan, the scheme is expected to have 5 million opt-ins and 2 million active users in the first year.

KCB Group CEO Joshua Oigara said, “We saw an opportunity to offer neglected yet viable Kenyan-based business additional financing options to continue day-to-day operations, and provide additional capital to maintain and establish long term growth.”

Kenya’s biggest banks merger

Oigara added, “Partnering with the other banks has allowed us to bring a new business line to market while offering the necessary expertise and scalability to meet growing customer demand and strengthening MSME contribution to productivity and inclusive growth.”

Dr Gideon Muriuki, CEO of Cooperative Bank, said: “This is the first time we are having a loan with a single-digit interest rate and we hope that in the next phase, we will have all banks on board.”

John Gachora, the CEO of NIC Bank, said the banks rallied together after the CBK Governor asked for a way for them to fund SMEs.

“The Governor told us not to come here without a solution for you and we believe this one here will work for you,” Gachora told traders at Gikomba Market.

Diamond Trust Bank CEO Nasim Devji said the product would come in handy for the thousands of traders who do not operate bank accounts but need access to loans at friendly rates to expand their businesses.

“We looked at a way to fill that gap and that’s how the five of us got together to come up with Stawi. We welcome traders to take this up and to talk to us as we work to see that their financial challenges are eliminated,” said Ms Devji.

Jeremy Ngunze, the CEO of CBA, said they had established through research that the market is ready for the product.

“There are thousands of people who have bank accounts but we also know that there are many without. We believe that we have come up with a unique product that will be useful for a lot of those in business that will be accessible without having to go through a complex application process,” said Ngunze.

During the State of the Nation Address, Kenyatta said that these interventions were critical to the production of competitive goods and services for the domestic, regional and global markets.

“In this regard, we will be launching an “SME Credit Guarantee Scheme” in a few weeks, aimed at deepening their access to credit without being subjected to complex application procedures and collateral requirements,” he said.

But, is this scheme what Kenyans need or is it being made to look like a desperate need for them to benefit a few individuals?

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