Editor’s Note: May 21, 2019

Can Kenya fix the ‘missing middle’?

Five of Kenya’s leading banks have announced a new mobile-based lending serviceaimed at improving access to finance for small and medium-sized enterprises (SMEs).

The service will initially be offered to 3,500 companies, receiving between $297 – $2,473 each over a 12-month period. A second phase could see it rolled out to another 10,000 businesses.

Let’s hope the plan succeeds.

Lack of access to finance is a major bottleneck to the growth of SMEs across Africa, with important implications for economic development. The World Bank estimates that SMEs make up 95% of registered firms worldwide, accounting for more than 50% of jobs, and contributing more than 35% of GDP in emerging markets.

Despite this 51% of the continent’s estimated 44m formal SMEs require more finance than they can access, resulting in a staggering $331bn funding gap for the sector.

They are the so-called ‘missing middle’ – too large to qualify for microfinance, but too small to attract larger investors or qualify for bank loans.

Bridging this gap is rightly seen as essential to driving private sector development, but a reliable lending model remains elusive.

The use of mobile technology, which has helped Kenya more than double access to formal financial services to 83%, could be a game changer.

It’s an initiative worth watching.

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