The shortest path to funding your small business in Kenya

If you’ve been thinking of starting a small business in Kenya but for some reason don’t know where to start, have no time to research potential lenders, no collateral to support your application, it is important that you understand how different loan options will affect how quickly you can get the money as well as the amount you can qualify for.

Invoice discounting, LPO financing, asset financing, personal loan guarantees, leasing and factoring, are some of the traditional options available to fund your small business in Kenya. However, most of these options can only be accessed if you have collateral or receivables to back your application.

So are there any lending options are available to you as a small business in Kenya?

This guide lists a number of digital financing options i.e. mobile and web, available to small business enterprises in Kenya. Lending alternatives that are easier for your business to qualify for and that offer timelier loan approval turnaround times, compared to going for the traditional bank financing route.

You will also learn why these alternatives are becoming the preferred options for many business owners, and how to best position your business.


The true state of small business lending in Kenya

The International Finance Corporation (IFC), the World Bank’s private sector lending arm, estimates that SMEs in Kenya have an annual credit gap of over $6 billion (KShs630 billion), which affects their ability to compete with bigger businesses.

According to studies by FSD Kenya, traditional bank financing is often not available and private equity markets are relatively under-developed.

This is partly true.

What with only 24% of loans in Kenya going to SMEs.

Furthermore, although the cost of credit in Kenya dropped significantly following the capping of commercial bank interest rates in September last year; as mentioned in my previous post, banks in Kenya would rather sit on trillions of cash than lend them to you.

While statistics such as these may be an indicator of how tough it is for small businesses in Kenya to access capital, the scene is shifting, as you’ll see below.

In fact, a couple months back, Dr James Mwangi, CEO of Equity Bank, while speaking at the launch of a research report prepared by Invest in Africa (IIA) in collaboration with Strathmore Business School on bridging the gap between big business and SMEs needfully “corrected” the notion that access to capital is a problem for SMEs. According to him,

“Access to capital is not a problem. That is a perception that repeated many times begins to look like reality. The problem is the cost of finance which is determined by market forces that are guided by government rate of borrowing through treasury bills and bonds but also driven by inflation.”

Failure to access traditional lending should not be the end of the road for your small business. Thanks to the various non-traditional options that exist in Kenya today.

3 Reasons to consider alternative funding providers

  1. Quicker loan application process. Most alternative lenders usually ask for very little or no paperwork at all. Most of the time, if say, your small business has an online presence sending a link, complete with evidence of receipts is usually sufficient. For some lenders such as Zidisha, Branch, etc, a link to your social media profile may be all you need to back up your claims.
  2. Easier to qualify for loans. Most alternative funders use mobile and web applications, making the application process really easy. In fact, for most of them, once you fill out your profile, you only need to update it as need be and use it to make an application. In fact, with other providers such as M-Shwari, KCB M-Pesa and the like, you don’t even have to do anything. They use your daily mobile money transactions to pre-score you. They also make an effort to send push notifications of any changes in your qualification limits.
  3. Transparency. Unlike traditional bank loan pricing structures that include a plethora of hidden fees in addition to the Government capped rate, mobile financial service providers in Kenya are mandated to disclose their fees, issue receipts and comprehensively describe the loan repayment plan well before a customer completes a transaction on their phones. This has created a lot of transparency in the financial services market which has for a long time been deemed a black box.

Unsecured Mobile / Web — based financing options for your small business in Kenya

  1. M-Shwari
  2. M-Co-op Cash. A product of Co-operative Bank
  3. KCB M-Pesa
  4. Equitel
  5. Kopa Chapaa — by Airtel Ltd.
  6. Tala — loans up to Kshs 50,000
  7. Branch
  8. Saida — loans up to Kshs 25,000
  9. Mombo Mobil
  10. Bitbond — Peer-to-peer bitcoin lending to online businesses. Borrow up to $25,000 starting at 1% monthly.
  11. Zidisha — a peer — to — peer online lending platform. Borrow up to a maximum of KShs 1,018,220 per loan.
  12. Kiva — an peer to peer online lending platform
  13. GroFin — an online business development financier helping entrepreneurs and business owners at the bottom of the SME pyramid to access tailored finance and experienced business support to help them create jobs and encourage social and economic development.

Of course by suggesting that you consider alternative financing options for your small business in no absolute terms doesn’t mean that all traditional alternatives have failed. If you have necessary collateral, credit history and evidence of business stability, then do go ahead and visit your regular provider. Who knows, the process could end up being faster, easier and you could eventually even end up with cheaper cost of credit.

In fact, many of the tier 1 and 2 banks in Kenya manage billions of shillings that are specifically earmarked for small business financing in Kenya.

Below are 7 such lenders.


Seven big banks in Kenya that could be your new best friend

  1. Equity Group Holdings. In 2016, The European Investment Bank (EIB) signed a KSh5.55 billion loan facility with Equity Bank earmarked for financing small and medium sized enterprises (SMEs) in Kenya. In 2015, the African Development Bank (AfDB) gave KSh15 billion ($148 million) to Equity Bank
  2. Housing Finance Company (HFC) Ltd. EIB signed a KSh2.2 billion loan facility with HFC to support longer-term financing to private enterprises and commercially operated public sector entities in productive sectors.
  3. Family Bank. Family Bank secured KSh3.33 billion from EIB; and another Sh1 billion from Dutch financier, Oiko Credit International’s East African subsidiary; to lend to SMEs in form of cheap, long-term loans.
  4. Chase Bank. In 2015, Chase signed a KSh1.12 billion deal with French development agency, Agence Française de Dévelopment (AFD), earmarked for lending towards companies investing in clean energy projects. AFD had also committed to an additional KSh2.2 billion (20 million euros) under a 12-year loan deal with Chase Bank. In the same year, Chase received a KSh5 billion ($50 million) loan from AfDB to boost their SMEs lending capacity.
  5. Kenya Commercial Bank (KCB). Young entrepreneurs stand to benefit through KCB’ Tujiajiri project estimated at Sh50 billion.
  6. Barclays Bank. Wezesha Biashara na Barclays’ offers secured business loans with same day approval, across major towns in Kenya.
  7. Standard Chartered Bank. Standard Chartered took an undertaking in July to increase its lending to SMEs by over Kshs 12 billion over the year The bank’s loan portfolio as at December 2016 was Kshs 122.7 billion.