Four initiatives that can deepen access to credit for individuals and businesses

Mobile money transaction

Mobile money transaction: There is invaluable potential in the role that technology can play in the credit market, particularly with digital financial services’ support to the critical processes of loan origination, disbursements and repayments. 

Photo credit: Pool

The latest FinAccess (2021) survey reports that 83.7 per cent of adults in Kenya have access to formal financial services, compared with 82.9 per cent in 2019, and up from 26.7 per cent in 2006.

This represents an increase in the proportion of households that own a financial account, as access to financial services via informal channels was noted to have declined from 6.2 per cent in 2019 to 4.7 per cent in 2021.

Despite this remarkable journey towards financial inclusion, however, about 11.6 per cent of the adult population are completely excluded from financial services; a proportion that rose from 11 per cent in 2019 largely on account of the destabilising effects of the Covid-19 pandemic on households and firms’ incomes.

In addition, while the gender financial inclusion divide is narrowing – at 4.2 per cent in 2021, down from 5.6 per cent in 2019, the gender gap in financial exclusion widened to 1.6 per cent from 0.5 per cent in 2019.

Similarly, the rural-urban financial inclusion divide narrowed over the period, driven primarily by adoption and use of mobile money.

On the other side, financial exclusion in both rural and urban populations rose from 14.4 per cent and 6.1 per cent in 2019 to 14.7 per cent and 6.2 per cent in 2021, respectively.

In the details, and particularly when focus is directed at gender and geographical location disaggregation, there are clear heterogeneities that are worth recognising in the rollout of interventions to avoid the risk of applying the same ‘paint brush’ across the groups and expecting to achieve the desired results.

Financial health index

In addition, there appears to be a notable disconnect between financial inclusion achievement that the country has witnessed and its outcomes. For instance, the financial health index published in the FinAccess 2021 report shows that only 17.1 per cent of the population that own financial accounts can use the same accounts to address their shocks.

This proportion had deteriorated from the 21.7 per cent observed in the 2019 FinAccess survey. This is a pointer to the fact that a larger part of the population uses financial accounts basically as conduits for funds between the employers/businesses and themselves, and not for pooling savings and accessing finance to fund investments and address inevitable shocks such as health bills.

In my view, it is important to highlight the constraints to the deeper utilisation of financial services and, more so, access to credit. A critical factor that comes to the fore is the existing information asymmetry challenges between lenders and borrowers, which continues to limit lenders’ ability to fully describe the characteristics of the borrowers and thus effectively price their credit. In such a case, two things are bound to happen, either credit becomes inaccessible or available at elevated prices that reflect the attendant risk.

Credit growth

Going forward, four initiatives or interventions will be critical in supporting credit growth to individuals and businesses.

First, a fully developed and well-structured government-led credit guarantee scheme carries a strong potential to de-risk borrowers and support credit growth in the economy. Here, there is scope to review the performance of the current credit guarantee scheme, and where necessary, apply modifications to enhance its uptake.

Second, the credit information sharing framework will continue to be a key enabler. There is need to protect and deliberately establish the framework, with clear strategic targets aimed at growing credit reference bureau (CRB) coverage in the economy, from the estimated 36.4 per cent of adult population towards levels seen in comparator countries such as South Africa at over 66 per cent. There is need to also create awareness that the Credit Information Sharing Mechanism expands the frontiers to access to formal credit.

Third, and in recognition of the important role that strong cashflows play in MSMEs’ access to credit, the enactment and full implementation of the Prompt Payments law by the government will revitalise cashflows to MSMEs supplying the national and county governments with goods and/or services.

Without this move, the knock-on effects on loan non-performance generated from delayed payments will continue to impede MSMEs’ access to credit to grow their businesses and take advantage of emerging opportunities in the supply chains.

Digital financial services

Finally, there is invaluable potential in the role that technology can play in the credit market, particularly with digital financial services’ support to the critical processes of loan origination, disbursements and repayments.

But for the country to realise more with the digital transformation, there is need to develop a financial sector innovation hubs strategy, to provide a clear policy direction on how banks can use behavioural attributes of customers from their social reputation, customer needs/trends, intellectual property, among others, as credit scoring and management mechanisms.

In my view, the overarching call to enhance credit access and utilisation in the economy and the success of the highlighted interventions above would require a coordinated approach that brings together all stakeholder views.

In addition, there will be need for concerted effort by all players – borrowers to improve their risk profiles and lenders to deepen their understanding of the risk exposures. The days of applying blanket policies are being replaced by granular analyses of the market conditions and a stronger pursuit of a deeper understanding of the increasingly complicated consumer needs.

Dr Olaka is the CEO, Kenya Bankers Association.


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