Microfinance lender – Momentum Credit, has introduced a financing facility targeting small and medium sized enterprises (SMEs).
The facility helps SMES access cash within a day without a physical collateral.
The Invoice Factoring, is a business financing facility where businesses are able to sell their outstanding invoices to a factor so as to get a cash advance of up to 85 per cent of the invoice value within 24 hours.
Momentum Credit which is a non-bank, non-deposit taking lending company, was established in March 2017.
Loan default rate is at the range of seven per cent.
Momentum Credit chief executive Job Muriuki in an interview with Enterprise last week said since its introduction in January, about 15 SMEs have benefitted from the product, improving their cash flows in their bank accounts.
Mr Muriuki said they target about 150 SMEs by year end.
“This product improves the cash flows for the SMEs in the bank, since all these cash goes through the SME bank account. Overtime, the bank will see a steady progression and a stability in these SMEs financial stability, making them more creditworthy for the banks,” said Mr Muriuki.
“Overtime, we’ll be able to graduate more SMEs to access bank financing.”
The product comes at a time when the IFRS 9, an international financial reporting standard is being implemented by financial institutions, forcing banks to factor in the likelihood of bad debts when calculating risks.
This will make it more expensive for banks to lend to SMEs and reduce availability of credit, even if interest rate caps are lifted.
Studies show that one of the leading causes of SMEs closing shop is the lack of access to working capital.
Under its new facility, Momentum Credit takes the responsibility of waiting for the invoice payment for up to 90 days, while the SMEs business benefits from the fast cash injection to boost its working capital.
The product provides a loan of up to Sh5 million, repayable within 90 days at an interest rate of five per cent per month.
Mr Muriuki said this has the potential of transforming the fortunes of the SMEs. However, one of the biggest challenges they are facing is that the micro lender is new and is trying to build awareness in a bid to make it a viable venture.
However, the interest charged is higher than in banks, attributable to the fact that some of the funds lend to SMEs have been borrowed from banks.
“The funds are from shareholders (local private investors) and loans from banks,” said Mr Muriuki.
The product does not register as debt but rather a sale of a receivable and therefore no debt is registered on the balance sheet.