Nexus between Stawi and Kenya SME finance challenge

Kenyan banks through the Kenya bankers association finally have launched Stawi fronted as a solution designed for all entrepreneurs to improve access to credit aimed at establishing, growing or improving their business.

Entrepreneurs will be required to sign up and open a digital account for their business operations where most if not all business transactions will have to go through similar to just having a typical bank account.

The move by Kenyan banks is laudable in terms of consolidating and developing an industry product to address the SME challenge of access to finance.

Based on several studies we have done on SME access to finance and specifically the contribution of current Fitech to SME growth and development, the following is my observation.

The natural financing trajectory of SMEs starts at family, friends, chamaa, Sacco and retained profits with medium entities fulfilling collateral and books of accounts taking up bank loans.

The entry of independent Fintech providing mobile credit disrupted the financing tangent due to their different customer evaluation model which requires neither collateral nor books of accounts coupled with speed of access to funds. Due to lack of financing alternatives the uptake of mobile credit has been astronomical by Kenyan SMEs.

SMEs like other businesses desire to grow which requires investment in assets that unlock long term value such as purchasing new equipment for leather goods producers in Kariokor or manufactures in Kariobangi light industry.

Whilst Fitech and Stawi provides access to finance; they only address short term cashflow challenges of paying salaries and wages, utilities as well as purchase of stock for SMEs in trade who buy cheap to sell at a mark up (Entrepreneurs in Gikomba, Nyamakima, Green grocers etc) which is small part of the SME jig saw which includes turnkey players in manufacturing, agriculture, ICT and Construction among others.

Stawi can be a game changer if it is able to dissect the sector composition of SMEs and address their long term financing needs of investing in assets rather than recurrent expenditure.

There are sustainability challenges that are still lingering such as the finality of the interest pricing of 9% cognizant of the loan pricing models of banks which factors cost of funds, profit as well as risk factor which places the interest rate higher than 9% not mentioning other fees.

So far Banks have not given an indication of; sourcing cheaper alternative SME funding from World Bank, Africa Development Bank or any other institution nor mechanism of managing SME risk profile.

Second is the challenge introduced with entry of IFRS 9 which will act as a deterrent to SME financing and finally is the issue of KYC (Know your customer) which requires detailed customer documentation hence the need by Stawi to have agents which may be a stumbling block to uptake of Stawi.