Access, not cost is the driver of credit uptake

Before M-Pesa became the symbol of financial inclusion, going to the bank was like flying first class. Banking was a rich man’s affair. The opulence that permeated the banking hall then was so frighteningly palpable that Mama Mboga and the whole lot of hoi polloi did not need one of those drilling glares from rungu-wielding security guards to know that they were unwelcome.

Then in the late 1990s and early 2000, Equity Bank and a number of Micro finance institutions (MFIs) came charging, dramatically tearing down the high walls of elitist banking. Suddenly, banking halls were abuzz with grease-stained mechanics from Grogon Garage in Nairobi’s downtown.

A place at the high table

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In Gikomba, lenders were falling over each as they wooed mitumba traders. Majority of Kenyans who eked out a living from the ubiquitous informal sector, it seemed, had finally earned a space within marble-walled, ornate banking halls even without acquiring a piece of land. And this was in spite of their low and erratic earnings.

There was a growing consensus that low-income Kenyans were now poised for a major climb up the rungs of socio-economic ladder.  And truly, some of these changes did have a bump on the size of the economy for the better part of Mwai Kibaki’s presidency. At its peak in 2013, credit to households and firms grew at a dazzling rate of 25 per cent, which is quite impressive when compared to the current stuttering growth of less than four per cent.

Back to the past

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After years of seeing their dreams checked by an introverted, risk-averse financial sector that believed lending to low-income Kenyans was a costly adventurism; low-income borrowers were finally on a roller-coaster.

But, alas, in the last five years, the cruise has been stymied, with the gush of credit to the private sector now flowing in spits. Banks are still cagey, subjecting borrowers to a laborious loan application process. You still need to append your signature on sheaves and sheaves of papers and surrender tonnes of documents as a prerequisite for getting a loan.

This does not auger well for a group of borrowers that, in the words of Central Bank of Kenya Governor, Patrick Njoroge, want to urgently pay for stock in the wee hours of the morning and repay it in the course of the day. Moreover, the little credit that is thriftily given out is not going to micro, small and medium-sized enterprises (MSMEs) which are run by women, youth and persons with disabilities.

Instead, it is the Government, large corporations and salaried employees that are snapping up all the credit. Without a foolproof means to appraise borrowers for risk- and even worse with an illiberal legislation that caps interest rate charged on loans in place- banks have reverted to using title deeds, logbooks and payslips as security for loans.

We have gone full circle. Credit- just as voting in some societies, in certain epochs- is once again a preserve of the propertied; it is for the rich. This has consigned millions into abject poverty as critical funds to start or expand business have failed to come by.

Wanjiku’s real needs

There is no way the country will attain the much-hyped Vision 2030 or the United Nation’s Sustainable Development Goals with such a sorry state of affairs, where more than half of its population has difficulty getting capital to grow. Luckily, there is a way out of this financial quagmire.

Technology- and specifically financial technology (fintech)- offers an opportunity to democritise the financial sector by expanding access to credit to all borrowers irrespective of their social and economic stations in life.

Wanjiku does not need money to build a Sh20 million mansion (though being able to get affordable mortgage would go a long way for her) in the next three years. All that she needs is a few thousand shillings to buy stock for the next trading day. Ordinary Kenyans want to do business, here and now.

By combing through such inordinate data as M-Pesa transactions or social media activities, digital lenders and such have been able to revolutionise the credit market by approving billions of loans within minutes. Not that micro-finance has not had its benefits, it has simply outlived its usefulness.

With virtually every Kenyan owning a smartphone, the last mile in financial inclusion will be unlocked by the Internet. And the winners will not be those who will give cheap loans, but those who process them faster.


True, digital lenders have received a flak for exhibiting tendencies of profiteering with their relatively high interest rate, part of the reason being the fact that those loans are unsecured. With use of such innovations as block-chain and artificial intelligence as well as the universal adoption of credit reference bureaus as a credit scoring tool, there is always room for improvement.

Nonetheless, it is important that policymakers including law-makers appreciate that access to, rather than cost of, credit is the elephant room. Much effort should thus be channeled towards ensuring that as many Kenyans as possible have access to credit.

Lastly, Treasury and CBK ought to come up with comprehensive regulations that will formalize digital lending by addressing such teething problems as data protection and predatory lending in an environment that will also guarantee returns for investors.

Mr Omondi is a business reporter at The Standard

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