Capital markets

Ruto seeks deal with Safaricom to disburse cheap loans to scammers


President William Ruto on arrival at the Norfolk Hotel in Nairobi for a press briefing by Safaricom, NCBA Bank and Kenya Commercial Bank. PICTURES | PSCU

Chairman William Ruto is seeking a deal with fintechs such as Safaricom to provide cheaper loans to small traders at single-digit interest rates.

The planned partnership will see the state lean on the lending infrastructure of Safaricom – which has facilitated its Fuliza and M-Shwari credit products – to offer loans to small and micro businesses under the so-called “ fund hustler”.

This reflects a shift in policy from previous administrations that relied on commercial banks to disburse state-owned affirmative action funds such as the Uwezo Fund.

As part of the deal, Safaricom and in conjunction with local banking partners will earn commissions for administering the “scammer” loans.

ALSO READ: Safaricom and banks cut Fuliza fees by up to 50%

The “scam fund” will provide state-backed concessional loans to small businesses that find it difficult to access funding from traditional banks.

The 250 billion shilling fund will be the centerpiece of President Ruto’s job creation agenda, especially as the outgoing government has extended a hiring freeze in parastatals, dashing the hopes of thousands of jobless Kenyans in an economy where corporations are cutting jobs.

“The Government of Kenya, and I have the candidate for Treasury and the candidate for ICT here, … will work with you in the fintech space because we want to work on a credit [facility]especially for micro, small and medium enterprises,” Dr Ruto told managing directors of Safaricom, KCB and NCBA in Nairobi on Wednesday.

“In the short term, the mission of my good friend Eliud Owalo (appointed Cabinet Secretary for ICT) and Professor Njuguna Ndungú [Cabinet Secretary nominee for National Treasury] aura is to structure with yourselves [Safaricom and its partners] the fund of scammers.

Professor Ndung’u, the 62-year-old former central bank governor, is a key architect of Ruto’s so-called bottom-up economic model, a pro-poor program that seeks to channel government resources to industries which can create the most jobs. such as agriculture and small businesses.

M-Pesa offers a range of payment, loan and savings services to more than 30 million active users in Kenya.

Fuliza is underwritten by Kenyan banks KCB Group and CBA Group, which already had partnerships with Safaricom to offer short-term loans on the M-Pesa platform under the M-Shwari product.

Mobile money service has become the main driver of profit growth for the dominant telecom operator, revenues from traditional voice and SMS services have stabilized.

The State seeks to articulate the M-Pesa network to offer microloans, the interest of which will be capped at one figure.

Currently, mobile micro-lenders charge borrowers annualized interest rates in excess of 100%.

The president had, in his campaigns, promised a new economic order that would solve unemployment and the lack of opportunity for low-income people through affordable credit. He has pledged to inject billions of shillings to support small traders such as mama mboga [grocery retailers] and the boda bodas [two-wheel taxi operators].

The creation of a “scam fund”, which he says will initially have 50 billion shillings, aims to provide cheap and easy loans to low-income people without collateral as part of his bottom-up business model.

“As and when, and the mission that I will entrust to these two gentlemen [nominees for Treasury and ICT ministries] is to work with you in the private sector to develop a product where people – a mama mboga in Ruaka [ a Nairobi suburb] and a boda boda person – also have access to credit at single-digit rates.

ALSO READ: Ruto Meets With Safaricom, Bank CEOs Over Fuliza Charges Review

“It’s the space where we have the greatest opportunity. It employs almost 80% of our population and yet they are constrained by access to credit,” Dr Ruto said.

He added: “I listened to many of them during the election campaign, and I am ready to work with you in a public-private agreement so that we can mitigate some of the risks of lending to this. category of Kenyans”.

Although data from the banking sector shows over the years that the failure rate of small businesses was lower than that of enterprises, lenders continue to assign a higher risk profile to MSMEs, which generally excludes them from the market. credit.

Results of a 2016 survey by the Kenya National Bureau of Statistics (KNBS), for example, suggested that around 71% of the 7.4 million MSMEs in 2015 got fewer loans than they needed. had asked banks for it, with around 86% forced to rely on family and friends for financing.

The previous administration, in which Dr. Riuto was vice president, sought to improve access to finance for low-income groups through affirmative action funds.

He created the Uwezo Fund in 2014 to support businesses owned by young people, women and people with disabilities. The debt-ridden revolving fund succeeded similar funds created by the Mwai Kibaki government – the Youth Business Development Fund and the Women’s Fund.

Over the years, affirmative action funds have accumulated huge bad debts, creating a liquidity crisis that has threatened their sustainability.

For example, the managing director of Uwezo Fund, Peter Lengapiani, said in June that only 2.5 billion shillings of the 7 billion shillings issued since 2014 had been repaid, a default rate of 64%.

This is well below default rates from digital mobile lenders like M-Shwari and KCB-M-Pesa as well as Fuliza – an overdraft facility run by Safaricom in partnership with KCB and NCBA.

“I’m very confident that if we give Shiko [a mama mboga he used as an example to demonstrate high cost of mobile loan] and his team the ability to borrow at single-digit interest rates, they can double or even triple their business,” Dr. Ruto said.

” It’s good for everyone. It’s good for fintechs, banks, taxpayers, the taxman and also for me. I think we’re going to have a win-win arrangement.

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