State mulls alternative credit score for small businesses

Co-operatives and Micro, Small and Medium Enterprises CS Simon Chelugui. [Elvis Oginas, Standard]

The government is pursuing an alternative credit score for small businesses in a bid to help them improve their liquidity amid a tough operating environment.

Principal Secretary in the State Department for Micro, Small and Medium Enterprise (MSMEs) Development Susan Mang'eni said the credit score will be independent of what is used to determine eligibility for personal loans.

The new credit score is designed to enable financial institutions to separate personal from business needs whenever an MSME owner seeks credit.

The PS, while speaking during a roundtable meeting with development partners on Friday, said there are already discussions between the ministry and financial institutions and other stakeholders, including credit reference bureaus, regarding the possibility of such a product.

The PS said bad credit score for small business owners is hindering them from utilising opportunities in the market.

"For example, today I get tender, I go somewhere to borrow, and I am told because of my negative credit score for Sh500 I had borrowed from a digital lender, I cannot access funds. Cleaning up credit score takes time," explained the PS.

She said there have been discussions about having a specific MSME credit score, which is modelled around alternative data.

"For example, in agribusiness, there are other metrics in that space which we can use to assess an idea and finance without necessarily looking at how I borrowed to consume," she said.

She added: "These are the conversations that we are having, and I am happy players in that space are saying we have to start looking at alternative data so that we bring those MSMEs, which are invisible to become more visible."

Ms Mang'eni said implementing this credit score will be big for the MSME ecosystem.

The PS together with Cabinet Secretary Simon Chelugui was leading a meeting between agencies in the ministry, including the Micro and Small Enterprise Authority (MSEA), and development partners.

Through the Hustler Fund, CS Chelugui said the government has been able to rehabilitate seven million Kenyans who had otherwise been listed negatively by credit reference bureaus. He noted that access to credit and the formalisation of businesses are the main challenges for MSMEs.

"We cannot do it alone as a government; that is why we have invited you [development partners] so that we begin the discussion on how we can move to the next level," he said.

The CS said the ministry is also looking into MSME-specific engagements when it comes to Economic Partnership Agreements (EPAs) between Kenya and other countries or trading blocs.

He said the EPAs are low-hanging fruits for small businesses. Kenya recently signed an EPA with the European Union and is pursuing one with the US.