The Government of Kenya will take advantage of the recent innovations in mobile banking to provide credit and other services to those without adequate access to banking.
The innovations are poised to offer more sophisticated banking services to bridge the gap between the banked and the unbanked.
The Kenyan Ministry of Finance programme to afford credit and banking to 8.3 million Kenyans employed in the informal sector will utilize new technology and lower the costs of financial transactions in order to reach the under-banked population.
The government has an ambitious plan to see that 32.7% of Kenyans who are excluded from financial access and over 50% of the population who are un-banked – particularly in the Microfinance and Small Enterprise (MSE) sector – can use a bank. The plan will encourage the use of online mobile banking, for example M-PESA, ZAP and M-KESHO, Pesa Pap, Bankika among others, in an effort to reduce the cost of transactions.
Since the users of these services will be registered for mobile banking this will provide valuable data to make lending and recovery much easier. In addition, it will serve as a good demonstration for policy development to promote formal financial inclusion in the areas that have not been covered.
The Ministry of Finance says for the implementation of micro and small enterprise financing to be a success, they have prioritized the introduction of a capacity building facility. The Minister for Finance, Uhuru Kenyatta, announced:
“This facility will address the capacity needs of the qualifying banks, microfinance institutions (MFIs) and other intermediaries to deliver this product and effectively manage the risks associated with this facility.
“In order to improve their efficiency and reporting, the program will consider the technological linkage required by the banks and MFIs to reach the masses – such as e-banking and m-banking.
“The new regulations that allow for agent banking will enable the banks to use Agents as delivery channels for offering banking services in a cost effective manner and hence at lower costs.
“Clear structures will be developed for information sharing through the banks, MFIs, agents and associations of MSEs and local authorities to ensure that accurate information is reaching the target groups.
“This programme will be started as a pilot in an urban area like Nairobi in collaboration with the City Council. Based on the success of the programme it will be rolled out into other regions.”
Kenyatta says a capacity building fund of Sh.800 million has been established for the banks and MFIs to allow the institutions to directly borrow from the government.
The Minister made assurances that the banks and MFI’s who borrow from the Central Bank of Kenya for MSE lending will develop appraisal tools and train their staff in MSE credit appraisal and delinquency management.
Consulting firms will be engaged to help the banks and MFIs to lower the cost of transactions and reach larger numbers of MSE clients with services such as credit savings and insurance. It is expected that experts will help institutions to structure insurance products for MSEs to protect their businesses and lives.
In addition, the Ministry of Finance will collaborate with the Ministry of Local Government and local authorities to introduce standardized Kiosks, stalls and suitable Mikokoteni (cut) and other structures that would meet the permanent requirements of the City Council.
Proper information has been highlighted as key factor for those targeted to decide whether to make loans. Information sharing will include the CBK licensed credit reference bureau, which compiles information on customers to share among banks. The next steps would be to include Savings and Credit Co-operative Society (SACCOs) and MFIs in the information sharing platform.
The registration of mobile phone users with the various service providers such as Safaricom, Zain, Orange and Yu will provide a platform that can be used by financial institutions and their agents to capture information about their clients such as financial transactions on the mobile networks and their capacity to take loans, insurance and save.
In order to create incentives for financial institutions to take more risk and reach lower than their usual clients, the CBK loan will be given for a longer duration to ensure that they have stable liquidity to give longer term loans. The duration of the loans will be for an initial period of four (4- 6) years with a grace period of 6 months to 1 year.
The interest rates for the loans will be lower to enable them pass some of the benefits to the small businesses which they are intended to support. The qualifying banks and microfinance institutions will also receive capacity building grants to improve on their capacity to target lower level clientele.