Stawi is a great initiative but is it the silver bullet to MSME finance challenge

The Central Bank of Kenya recently endorsed a mobile loan product by five commercial banks targeting micro, small and medium scale enterprises.

The mobile based credit facility similar to already existing interventions by Fintech in the Kenyan market is aimed at improving access to credit to SMEs by using alternative credit worthiness evaluation criteria departing from the traditional approach of accounting records and collateral.

The loan product named Stawi espouses to offer unsecured loan products ranging from Sh30,000 up to Sh250,000 with repayment profiles of 1-12 months, at an interest of nine per cent per annum with other costs pushing it higher.

To put SME financing into perspective, according to Viffa Consult 2019 SME finance access report; 18% of SMEs that responded to the survey indicated that they located business related funds in a mobile wallet while 82% put in a financial institution.

Further according to the report SMEs financed their business as follows: family and friends (40%), commercial banks (22.5%), Sacco’s (22.5%), Mobile money (16.67%) and loan sharks (11.11%).

Finally according to the 2019 SME finance access report; high priority finance needs of SMEs were: product development, purchase of equipment and expansion to untapped market.

According SME Mobile credit finance in Kenya 2019 report by Viffa Consult, mobile credit has increasingly gained acceptance as a form of business financing due to; fast loan processing, service convenience and favorable credit terms that don’t require collateral. According to the report, SMEs are using mobile credit to purchase stock, pay utilities such as water, electricity, rent as well as marketing related expenditure.

Based on these reports ;mobile credit providers  such as Stawi are only solving SME cashflow challenges related to meeting day to day recurrent obligations and not financing challenges that unlock value such as product development, equipment purchase and expansion to new markets all which are investment that are long term in nature.

For Stawi to be the game changer, the following matters must be addressed; Real cost of credit must come out clearly for SME to evaluate its cost effectiveness. Stawi is a loan product from banks who price loans based on three items; cost of funds (interests provided to depositors plus profit and risk provision), profit and provision for risk.

Stawi is currently charging an annual interest of 9% which based on the current loan pricing model by banks is below cost. SMEs could therefore infer that the price is an introductory price that should increase to what other players are charging if not more.

Stawi must state clearly a framework for protecting SME customer data and other mechanism of protecting SME customers who will interact with the platform, finally Stawi must stive to offer long terms credit to SMEs for them to invest in unlocking value hence grow and not just survive another pay check