The year 2024 is poised to bring about significant changes and challenges, particularly in the small and medium-sized enterprise (SME) sector. The competition is heating up, and as Kenyans increasingly embrace digital lending apps, experts anticipate that interest rates will become a crucial determinant for borrowers in their choice of services.

The Impact of Competing Forces

The digital lending landscape in 2023 witnessed the entry of the Hustler Fund, causing a ripple effect on Safaricom’s Fuliza. The fund’s influence resulted in a notable drop in Safaricom’s bottom line, with Fuliza’s contribution diminishing from Sh3.4 billion to Sh2 billion. The decrease was primarily attributed to a reduction in the average loan size by Sh60, leading to a drop in the average loan per person to Sh260 from Sh320.90.

Equity Bank also joined the fray by unveiling plans for a real-time overdraft facility, challenging Fuliza and Faraja products. Although specific terms and conditions are yet to be clarified, the facility is expected to offer borrowers a flexible repayment plan of up to 30 days.

Competition Spurs Innovation

With the intensification of competition, financial institutions are rolling out innovative features. Tala, for instance, has introduced a top-up loan feature, allowing customers to borrow multiple times within their pre-approved limit without the need for re-application. This move is aimed at retaining customers and fending off competitors.

SMEs Take the Spotlight

While personal borrowing dominated the scene in 2023, experts predict a shift toward SME lending in 2024. Tala has already signaled its commitment to this sector by scaling up its loans targeted at SMEs. Additionally, the government’s second phase of the Hustler Fund aims to reorganize, register groups, and increase borrowing limits for micro, small, and medium-sized enterprises, fostering economic opportunities and addressing unemployment.

Government Initiatives and Concerns

The introduction of the Hustler Fund, championed by President William Ruto, aimed to provide affordable credit to Kenyans. As of last month, the fund had disbursed Sh39.7 billion to 21.8 million people, mobilizing Sh2 billion in savings. The government’s shift from blacklisting debtors to repairing creditworthiness has allowed 7 million Kenyans to move from Credit Reference Bureau (CRB), with 2 million now active borrowers of the Hustler Fund.

Challenges Ahead

Despite the positive outlook, concerns are emerging, especially regarding the projected low interest rates resulting from heightened competition. Ken Ouko, founder of Ken’s MoneyMatters, raises the issue of inadequate education on borrowing impacts, emphasizing that lower interest rates might lead to an increase in consumer debts.