This archive report was first published on 19 November 2019.
Kenya's economy is driven by the private sector, with hundreds of thousands of small and micro enterprises employing millions. These businesses rely on access to cash and credit for survival and expansion.
Mobile penetration and money have been used as intermediaries to catalyze money access, savings, and credit in urban and rural areas. Smartphone use and internet penetration have aided the growth of fintech.
A report by the Institute of Economic Affairs found that the informal sector contributed 35% of the GDP and accounted for 80% of employment in Kenya. Over 60% of those working in this sector are youth aged 18-35, and half of them are women. These groups are the most disadvantaged in terms of credit advancement and access.
With the interest rate cap regime, mainstream banks were not issuing credit, even to those who needed it most. This spelled doom for many enterprises without documented collateral.
Online digital lenders have filled the gap by providing credit to small businesses and individuals without collateral. They use customers' data to gauge their worthiness and issue credit in smaller amounts, which can be increased over time.
According to the report, over 25% of Kenyans live below the poverty line, earning less than $2 a day. The majority earn between Sh10,000 and Sh35,000 monthly, which is equivalent to $100-$350 per day.
These digital lenders have made it possible for individuals to access higher amounts and improve their credit scores. On a micro lending scale, they have midwifed growth that will eventually lead to a seamless transition of these businesses to increased turnover and eventually owning assets to qualify for bank loans.
