In Kenya, micro, small and micro enterprises (MSMEs) constitute an estimated 98 per cent of all registered companies. Outside of farming segment, SMEs absorb half of all employment seekers each year, and their contribution to employment is growing by 12 to 14 per cent each year, according to the public investment promotion agency (KenInvest). They create nearly one in three jobs, but only 3 per cent of GDP as they are predominantly informal.
Even with the great contribution that they have to the economy, access to business financing for MSMEs in Kenya has been a challenge, given their informal nature in that most of them are singly-owned businesses that do not have clear administration structures. Also, finance institutions such as banks usually demand collateral as security for loans and credit to business, a challenge to a good number of MSMEs.
This scenario has since March 2020 been aggravated by the Covid-19 global pandemic, which has hugely affected SMEs’ access to finance. Businesses like restaurants, bars and retail stores are already struggling with a decline in customer demand due to decreased incomes, repayment of bank loans, rent and utility bills fueling worries of a spike in non-performing loans.
According to the Central Bank of Kenya (CBK), within 2019 and 2020, commercial and microfinance banks received loan applications from SMEs worth approximately Sh740 billion, of which Sh546 billion (74 per cent) was approved. Most banks have cut loans to the private sector to avoid losses due to the rising rates of defaults that in July 2021 stood at 14.2 per cent of all loans issued.
Micro-finance institutions (MFIs) have stood in the gap with innovative business financing opportunities for SMEs. Following the re-opening of the economy and the easing of Covid-19 containment restrictions in late October, this seems to be an opportune moment MFIs to lend to SMEs.
“The economy has re-opened after such a long time, one and a-half years. This is the opportune moment for MSMEs to borrow. It is the time to restock and boost their working capital this being a festive season and as we get into an elections year, it is time for businesses to re-strategise and diversify,” comments Peter Macharia Kamau, the chief executive at Jijenge Credit Limited.
Cognisant of the invaluable role that MSMEs have in rebuilding the economy, Jijenge Credit has since 2014 focused on lending to MSMEs. Having acquired 25 years’ experience at the banking industry as head of business banking, Mr Macharia gave MSME lending a different approach as he needed to accommodate the unbanked populations.
MSMEs face challenges from limited access to finance, lack of databases, low research and development expenditures, undeveloped sales channels, and low levels of financial inclusion, which are some of the reasons behind the slow growth of MSMEs. Jijenge Credit, provides SMEs with free support on areas like research and development, and sales support, Mr Macharia says. This has been a competitive advantage for the MFI in their journey to become an effective MSME lender.
“We have also eliminated all legal aspects in emergency loan products, apart from the basics. This is part of our new strategy to be able to serve our customers better,” explains Mr Macharia. The repayment schedules can be daily, weekly or monthly; and repayment time can be from three months to one year depending on the type of business.
This flexibility in how they handle their MSME clients has since a steady growth in their loan portfolio since March 2020. “We listen to our customers and we have done a lot of rescheduling and restructuring of most loans to accommodate the affected business clients.”
With the reopening of the economy, most businesses have resumed operations, even though the revenues remain low.
“However, a good number of businesses across the country are scaling up after the curfew was lifted and the economy is picking up,” he notes. Business recovery has had an impact to the economy as many job opportunities are coming up with the lifting of the curfew.
The micro-finance institution has recently revamped their digital lending platform with the use of updated software which has led to great customer service, and increased efficiencies in the processing and disbursement of loans. The use of technology has increased the uptake of loans as clients apply through the website portal, scan and email their original documents which after verification and approval, the loan is processed.
“We wire the money electronically to their bank account and they can access it on same day,” says Mr Macharia.
The time taken to process loans is between 30 minutes and one hour, once all paper work has been approved. This, in addition to the ability to disburse huge amounts has given Jijenge Credit a competitive edge over money-lending apps which have become popular in the market. The micro-lender serves both employed and business people, who mainly comprise lower and middle-class earners.
“Most of their financial needs are usually of an emergency nature such as medical emergency, school fees and other pressing domestic needs,” he notes.
The firm provides startup solutions to new businesses and steering up of existing business, and this way they hold their clients hand in their growth journey. Many MSME success stories have started with Jijenge, as it has given businesses a financial platform to build and rebuild themselves.
In the market, Jijenge stands out for their SME loan, financing and banking solutions due to their affordable interest rates, excellent customer service, and also flexible repayment periods.
To better serve business people, Jijenge offers import duty financing on car imports and imported goods.
To keep default rates low, the micro-lender vets all loan applicants to assess their repayment abilities and the purpose for the loan.
“We vet carefully from their bank statements and assets. But most importantly, the purpose of the loan. If necessary, we decline,” says Mr Macharia. The elimination of double registration of motor vehicles by the National Transport and Safety Authority (NTSA) has helped the micro-lender to keep defaults at a low.
In July 2020, following the easing of coronavirus lockdowns by the government, the micro-lender had to increase its security margins to avoid sinking into insolvency amid growing quick loan requests on resumption of business. The move was to vary its security margins to accommodate more customers while staying afloat.
By widening the margin between the amount of the loan and the value of the security, the lenders are able to lend to more customers. The lender, with over 25,000 customers — 80 per cent of whom are MSMEs — has intensified vetting on loan applications and increased background checks on customer income sources.
In October 2020, the micro-lender, which serves the entire country and parts of Tanzania, inked a deal with the Ministry of Public Service and Gender, which allowed civil servants to take up commercial loans. The company lends to government employees through a digital interface check-off system against their pay slips.
The move was in response to the steady rise in demand for loans since the easing of movement restrictions in July 2020 in the wake of the covid-19 pandemic. Businesses and individuals hit by the pandemic took up loans to boost their operations even as the lender restructured 80 percent of its loan repayment plans.
In the market, Jijenge Credit is synonymous with log book loans, with the highest loan amount at Sh10,000,000. The firm is also involved in bid bonds issuance for business people in government tender projects.
Now that the economy is showing some resilience, part of the micro lender’s post-Covid recovery strategy is to fill in capital gaps in meeting the increase in loan demand for business working capital. MSMEs are estimated to contribute about 33 percent of the gross domestic product Sh3 trillion out of the country’s output of Sh8.9 trillion in 2018.
