How Tala is giving SMEs in Kenya a Financial Leverage

Kenya’s SME sector has been going through some murky waters over the years. Despite the fact that the sector employs 86 percent of Kenyans and contributes 45.5 percent of GDP, it is ailing from within with little help coming from the authorities.

Stats show that at least 400,000 SMEs close shop in Kenya annually with 80 percent of them doing so before their first birthday. One of the major reasons why SMEs have been dying in Kenya is inadequate access to credit and finance.

The coming into force of the Interest Cap Law dealt a huge blow on the SME sector. Commercial banks refrained from lending to the SMEs who were considered risky. In other words, the SMEs were left to look for their own means to ‘survive.’

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Digital lenders came in as a ‘savior’ to Kenya’s SME sector. For the last five years, Kenyans who ‘fell out of favor’ from commercial banks, have turned to digital lenders for financial support.

“Digital lending has really propelled the aspect of financial inclusion in Kenya,” said Ms. Rose Muturi, the Regional Manager for East Africa at Tala during an interview at their offices.

According to FSD Kenya, 27 percent of Kenyans are digital borrowers. 37 percent of Kenyan digital borrowers are borrowing for business purposes with virtually all of them being SMEs. Digital lenders are playing a pivotal role in helping SMEs to access credit.

“A majority of non-banking digital lenders play in the micro segment offering small loans to a possible maximum of 100,000 shillings. For Tala, our maximum loan is 30,000 shillings. From the data we have, 65 percent of those who take loans from us will use them for business,” she added.

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With the unemployment rate in Kenya hitting 43.5 percent according to an official from the National Employment Authority, the SME sector is the only reprieve for hundreds of thousands of graduates without jobs.

The only way that young people can be supported to either start or continue their own small businesses is by enabling them to have access to credit and financing.

“Commercial banks find it hard to lend to SMEs because they are considered risky. For us, we work with the consumers directly because we relay money directly into their mobile money. Lending to the micro-segment is very costly and the risk amount is very high,” said Ms. Rose.

Early this year, Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge likened digital loans apps to ‘shylocks’ and called for their regulation. Members of Parliament have also called on CBK to move with speed and regulate the digital lenders.

According to Ms. Muturi, digital lenders operating locally have made significant progress towards self-regulation as they wait for authorities to draft guidelines in which they will operate in. She disclosed that digital lenders are coming together to form the Digital Lenders Association that will help in bringing harmony into the sector.

“Our primary goal is to create financial identities. Financial identities means going to consumers who can be described as underserved and have not been able to access credit before and give them that opportunity to access credit and be able to fulfill whatever needs they have,” she said.

Ms. Muturi is a credit scoring expert and in 2015, she was crowned by being named in the Top 40 under 40 women.