Kenyans have repaid Sh12 billion out of a total of Sh22 billion Hustler Fund loans disbursed by the government since November 30 last year, Cooperatives and Micro, Small and Medium-sized Enterprises Cabinet Secretary Simon Chelugui has revealed.
Mr Chelugui, who was speaking during the fourth edition of the Nation Media Group SME Expo that convened over 15,000 participants and 150 exhibitors, further disclosed that, out of some 19 million borrowers, 6.5 million Kenyans have returned to re-apply for the loan facility.
The Hustler Fund was launched as part of the new administration’s effort to facilitate access to affordable credit for SMEs, a majority of which operate at the informal level. It has four loan products, including a personal loan that offers borrowers between Sh500 and Sh50,000 at an interest rate of eight per cent per annum and a Micro Enterprise Loan product that offers between Sh10,000 and Sh200,000 to micro businesses at individual and group levels through savings and credit cooperative societies (Saccos).
“The MSME sector drives the economy of this country. Our future lies in the promotion of small businesses. Some of these large organisations were started in homes and garages and, because they got the support they needed, they were able to grow,” noted Mr Chelugui.
Given the significance of MSMEs as a source of employment, Mr Chelugui said hurdles in accessing funding become obstacles to poverty reduction and economic progress. These hurdles include the cost of borrowing, and putting credit out of reach. Many SMEs do not have bank accounts and, therefore, cannot access financial services.
“The sector creates employment for over 15 million people and has a value output of Sh3.3 trillion. This makes it a high-priority segment in the realisation of any government’s economic transformation agenda,” said Mr Chelugui.
A majority of SMEs, the CS noted, also lack security in the form of collateral, making them the perfect candidates for shylocks. Alternative lenders such as shylocks and digital lenders offer collateral-free loans, making them attractive to borrowers looking for quick cash and who are often locked out by banks.
“In the process, whatever business they are doing, whatever profit they are making, is all eaten up by this unregulated interest by shylocks. Such products charge interest rates as high as 10 per cent per day thereby adversely affecting the liquidity of borrowers,” Mr Chelugui said.
Reduced credit scores
Because these products are easily accessible, this has led to borrowing from multiple apps resulting in debt distress and the reduction of credit scores, affecting the borrowers’ ability to obtain credit from banks in future. Traditional bank credit products are still out of reach for many SMEs due to their perceived high-risk profile.
Mr Chelugui said one approach to solving the obstacles of accessibility and affordability of credit is through blended finance, leveraging on the private sector and development partners.
The capital markets, through a full range of instruments including debt and equity, also have an opportunity to offer alternatives for MSMEs seeking flexible lending terms and conditions beyond traditional bank financing.
The alternative finance models the capital markets can explore for MSMEs include business angel investments, crowdfunding platforms, venture capital as well as public equity.
“A sector that constitutes 98 per cent of businesses cannot be ignored. We all have to come together and support this sector,” said Mr Chelugui, adding that there is also a need to enhance MSME capacity not only through the capital markets but also through financial literacy in order to mainstream their economic participation.
Mr Henry Rithaa, the Chief Executive Officer of the Micro and Small Enterprises Authority (MSEA), noted that there is a need to promote policies that support access to financing instruments for MSMEs as well as create risk sharing and risk mitigation strategies for high-risk MSMEs seeking financing.
Mr Rithaa also urged MSMEs to leverage alternative financial facilities set aside by the government to benefit, especially disadvantaged groups such as women, the youth and people living with disabilities.
Such facilities include the Youth Enterprise Development Fund, which provides affordable credit to youth-led businesses in order to mainstream their participation in economic growth. Others are the Uwezo Fund set aside for women, youth and people living with disabilities to promote businesses and enterprises at the grassroots level.
“The Kenya Youth Empowerment and Opportunities Project also provides targeted youth with start-up grants to start and grow their business. Under the project, 70,000 youth have received grants worth Sh2.8 billion,” noted Mr Rithaa.
State-owned Kenya Industrial Estates also provides affordable medium to long-term finance of between Sh10,000 to Sh14 million to MSMEs for the purchase of machinery, equipment and working capital either for start-ups, expansion, modernisation or rehabilitation focusing on priority sectors.