Kenya leading the world on credit access

Proponents of micro-loans argue that they are a significant means of lifting the poor out of poverty and providing them with the means by which to develop financial independence. When one considers that Kenya has a population in which around 56% of people live below the poverty line, the government’s efforts to increase access to credit and financial services for the poor becomes poignant.

For several years, Kenya has been developing new innovations in financial services and is ranked fourth in the world in terms of ease of access to credit by a World Bank report. The report ‘Doing Business 2010’, looked at 183 economies around the world and found that Kenya’s financial services sector, in particular the ease with which the population can utilize financial services, ranks up there with Switzerland, Australia and Singapore, all of which are among the best countries in the world for accessing credit.

Since the 2008 global financial crash, banks have become more pessimistic worldwide when it comes to lending, and for the world’s poor, this can be devastating as those running micro-businesses, such as a small holding for agriculture, bee farming or fishing, are often among the first to be excluded from access to credit for growth as they’re seen as being more risky.

Kenya has made a concerted effort to reduce the impact of this by developing its regulatory framework, making it easier for the sharing of financial information such as credit histories and financial statements, all of which make it easier for an individual to access credit – for Kenya’s poor this is important because it can help in applying for a micro-loan, a micro-loan of $500 could help an innovative but financially sidelined individual set up a small enterprise to provide her or herself and family with an income.

In addition, the Kenyan government has introduced new laws to better facilitate banks in providing micro-loans and financial services. The primary government body in this regard has been the Central Bank of Africa (CBK). 

Kenya news media recently reported that CBK had provided Safaricom with the right to engage in some financial service activities, because of this Safaricom, a mobile network provider, has provided a service whereby its customers can use their phones to transfer and store money.

This service, called M-Pesa, is ground-breaking and has enabled 9 million people in Kenya to access financial services via their mobile phone – it has been especially beneficial to the poor, many of whom have mobile phones, as it enables them to develop a financial history.

A new service has now been introduced in partnership with Equity Bank, M-Kesho, whereby money saved on the phone can earn interest.

The benefit of such measures in the long-term is that with better access to credit histories, more micro-loans can be given and with less interest rate, which will bring the country’s relatively high rates down, making borrowing more affordable.