A recently launched Central Bank of Kenya (CBK) backed credit product that is a target of small and medium businesses also known as SMEs has breathed hope into the current constricted economic environment. Dubbed “Stawi”, the loan facility shall allow micro, small and medium businesses to access unsecured loans ranging from Shs.30,000 to Shs.250,000 from five commercial banks. The loan facility shall be due in a minimum of one and maximum of 12 months.

Interest rates, at 9% per annum on principal loan value shall come as a reprieve to the Loanees even as they hope to get a lower facility fee than the set 4% by the CBK. This facility is a step in the right direction to help MSME’s out of their current challenges in securing funding amid the strict loan terms from many commercial banks, thanks to the interest rate cap that has been in play since August 2016.

Since then, commercial banks have shied away from lending to individuals and small businesses while shifting their lending to government bonds claiming incapability to accurately price customer risk. They attribute this to the MSMEs which also carry high default rates. Statistically, the private sector credit grew by a mere 3.4% in the year to February 2019 missing CBK’s projected target to support economic growth of 12 to 15% by a big margin.

The launched product’s success in helping to address the MSMEs’ situation will, however, depend on the faithfulness and commitment of the five commercial bank partners to finance small businesses. With the government still active in the domestic market, many of the commercial bank partners will surely be tempted to stick to the non-risky business with the state.

Business owners now only cling to the hope that Stawi will be practical and shall be that needed first step in the journey away from the current restrictive lending era. This is because MSMEs hold tremendous potential in the Kenyan economy even though their current contribution remains limited somehow due to the capital challenges they face. These capital challenges limit initiatives such as value addition that boost the MSMEs’ chances of accessing wider markets.

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