Category Archives: credit reference in Kenya

End Credit Reference in Kenya?

A well-meaning Kenyan has taken a petition to parliament, asking it to disband credit reference bureaus. He complains that they  have listed more than 700,000 individuals in their database as defaulters..causing a lot of anguish to the listed individuals as they are unable to access financial facilities from local banks

Parliament hansard from mzalendo.com

Credit reference petition to parliament

Credit reference bureaus have been operating in Kenya for about five now, and this petition comes at a time when many banks have heavily increased their provisions for bad debts in the year 2015.

 

SME Lending in Kenya

The Central Bank of Kenya, Financial Sector Deepening Trust Kenya and the World Bank, have published a study on bank financing of Small and Medium Enterprises (SMEs) in Kenya ($1=Kshs 100). Excerpts

  • The total SME lending portfolio in December 2013 was estimated at Kshs. 332 billion, representing 23.4% of all banks’ total loan portfolio
  • Donor Support: Nearly all of the banks interviewed received some form of donor support or were in discussions with donors for support directly related to financing of SMEs. In several cases there were banks with support from as many as four donors at a time.
  • Limited Government Intervention: In 2010 The Government (though the Treasury) established a special SME scheme, called the MSE Fund, but since 2012 no new loans have been approved by the fund. According to Treasury, the scheme was discontinued because “the intention was not for the Government to lend, but to create an incentive for banks to engage with SMEs”. After only a year of the fund’s operation, banks started to lend more to SMEs from their own books, especially Equity Bank, and therefore Treasury did not see any reason for the continued operation of the fund. In addition to the MSE fund, the Government set up a Youth Fund and a Women Entrepreneur Fund, in which a number of banks are participating. The Government is also contemplating a partial credit guarantee for agricultural loans.
  • Courts Not Good at Dispute Resolution:  Enforcement of secured claims appears to be slow and costly, affecting the cost of credit. It takes 4.5 years, costs 22% of the value of the debtor’s estate, and only yields 30% of what is owed
  • PE & VC’s: The majority of around 15–20 active private equity funds focused primarily on SMEs with a perceived financing gap of typically between US$50,000 and $5 million. The funds target deal sizes of around $1–3 million, which is still at the high-end of the SME segment and is therefore out of reach for most SMEs in Kenya. The venture capital industry is still nascent with about 10 venture capital type funds, but interest from international firms, as well as local ones, especially in the emerging ICT industry, has recently been on the increase. There are several incubators which have been set up to help build the pipeline for such deals, but the sector is still at an early stage of development
  • 3 Kinds of Banks: Banks target the market segments they are most effectively able to service. There are 1. Corporate oriented (Barclays, CfC Stanbic, Standard Chartered)  2. Supply-chain oriented (BoA, Chase, DTB, Ecobank, FINA, I&M, NIC) 3. Micro-oriented (Co-op, Equity, Family, KCB, KREP, Jamii Bora)
  • Overdrafts are Bad: The most interesting finding from this analysis is arguably the central role played by overdrafts in SME lending in Kenya. While overdrafts can be useful to meet immediate liquidity needs and to avoid firms having to turn to informal lenders or shadow banking, a problem arises when firms use overdrafts to fund specific working capital or investment financing needs. Overdrafts tend to be very expensive and inefficient in addressing specific business funding needs. Banks, on the other hand, may have limited incentives to reduce firms’ reliance on overdrafts, as the overdrafts usually provide high profit margins. Nonetheless, during the interviews some bank managers confirmed that over-reliance on overdrafts can be a major hindrance to the development of SME finance in Kenya: overdrafts are a financial ‘black box’ because they do not reveal why firms are borrowing nor how the loans are used.
  • Interest Rates: The average annual interest rate is 20.6%  for microenterprises, 18.5% for small enterprises, 17.4% for medium enterprises and 15.3% for large enterprises.
  • Potential 20 Million Credit Reports: As of 31 December 2014, a total of 5.2 million credit reports were requested by banks, compared with 2.3 million as of December 2012. Adding the information from the over 20 million registered mobile money/mobile financial services users would lead to a significant expansion of the underlying information base.

New Credit Cards from NIC and Equity banks

This week, NIC Bank launched a platinum credit card and Equity Bank formally announced their expanded their impressive card portfolio that now includes American Express

The NIC Bank Visa Platinum credit will be offered to a select few clients like professionals, senior government employees, business leaders, and entrepreneurs. The card comes with a variety of privileges in terms of shopping discounts, priority pass access to 600 VIP airport lounges in 100 countries (with complimentary snacks, free internet at many, and card holders can bring in companions), a portfolio relationship manager, and purchase protection for 90 days. 

For frequent travelers around the world, it also provides useful facilitation in emergencies like payment of hospital deposits of up to $2500,  and arranges for emergency evacuation, legal advice, transport of companions or children.  
The annual fee is Kshs 6,000 (~$70) and there is no joining fee. NIC will also have a rights issue and a bond issue that shareholders will kick-off next week at an EGM.

Equity Bank is signing up merchants to accept American Express cards – for which they are the exclusive card issuer in Kenya. They have already signed on Nakumatt,  ArtCaffé, Heritage Hotels, Best Westernm Laico Regency, Leopard Beach, Boma and some other hotels.

Speaking when he confirmed the development, Equity Bank Managing Director, James Mwangi, said the bank is now a partner for American Express, Visa, MasterCard, PayPal, Google, China Union Pay, SWIFT, JCB, VFX (Equity Direct) and Diners Club.

As per Central Bank stats, Kenya had about 162,000 locally issued credit cards as at February 2014, compared to 114,000, three years ago.

Mobile & Card Payments across East Africa

A new unsecured card solution was launched by afb last week that will allows customers to instantly spread the cost of their purchase at participating shops into affordable 6 month repayments. afb have signed up 52 merchants like Baus Optical, Cambridge Opticians, Fabguru Shoes, Kitengela Glass, and local supermarkets (Tumaini, Home Depot, Homemade) and are also signing up other merchant shops where consumers will be able to apply for cards and get them approved & issued in the stores ahead of making a purchase.  afb settles the transaction amounts directly into the retailers bank account, and the the customer makes repayments via M-Pesa. afb next hope to venture into loans and insurance in Kenya.
How large is the card market? A Central Bank of Kenyareports showed that there were 9 million debit cards and 140, 000 credit cards in use in Kenya in 2012.
In terms of mobile money, CBK data showed that 21 million Kenyans moved Kshs. 141 billion ($1.65 billion) via 53 million mobile money transactions during February 2013.

CBK has also come up with new mobile money rules that target money laundering. They require that operators link different accounts opened by a user with a single ID card, flag accounts that move more than Kshs. 100,000 (~$1,175) per day or 300,000 (~$3,530) per week, have audit trails, institute systems to handle customer complaints and retain transaction data for 7 years. 

KCB and Western Union who have an account-based money transfer service (ABMT) in Kenya will extend it across East Africa this week, enabling KCB customers to receive money from Western Union directly into their accounts.

Kenya Airways has a 1.5% fee on all credit card transactions (owing to high processing bank charges).

Following a spate of fraud incidents last December, the Kenya Bankers Association (KBA) has launched an ATM safety campaign dubbed “Be Alert” or “Kaa Chonjo” which include tips such as cover the PIN with hand, and sharing PIN number with anyone (including spouses) 

KBA also  announced the shift by Kenyan banks to the new Europay, MasterCard and Visa (EMV) technology to ensure better security of cards.

90% of KenyaPower pre-paid electricity tokens are now purchased using #Mpesa – according to an Safaricom Business ad.

Diners can now pay restaurant bills via M-Pesa under a new partnership between Kopo Kopo, Eat Out and Safaricom. Restaurants accept payments at 1.5% per transaction.

 
MasterCard and Equity Bank introduced PayPass enabled debit cards in 5 African markets which will enable merchants to receive payments via low cost add-ons linked to applications on their mobile devices (such as a smart phone or tablet) 
Mastercard and I&M Bank launched a multicurrency (Dollars, Pounds, Euros) prepaid card which enables users to load up  to $10,000 and make foreign currency purchases without incurring exchange rate or other charges.

MasterCard also released a study called the MasterCard African Cities Growth Index that showed that Accra, Lusaka and Luanda offer the highest growth potential in Sub-Saharan Africa. Other ranked cities included Dar es Salaam (4), Addis Ababa (5), Nairobi (6), Kampala (7), Johannesburg  (8), Cape Town (11), Mombasa (12), Lagos (13),  and Khartoum (19).


Credit reference bureaus like CRB Africa and Metropol are expanding across East Africa.

The inaugural Mobile Money Africa Awards will be held in Johannesburg next month, to award the best mobile money app, mobile banking service, and mobile money platform for Africa, among others.  

Nation Hela launched last year has 8,000 active cards in use.

With PesaPal, Kenyans in the Diaspora can send school fees payment directly to 12,000 schools in Kenya using their credit cards (no need for money transfer service). 

Shell Kenyahave a visa card promotion to encourage motorists to swipe their cards and pay for fuel The platform is powered by Equity Bank POS at all Shell stations, and station owners are not charged commissions for card sales (Shell pays all commissions).

Tangaza321 is said to be the second largest mover of mobile money behind M-Pesa. The Tangaza system uses biometric data (fingerprints) as many customers don’t possess national ID cards and allows them to send money across all networks, even to people who don’t have mobile phones.
A team with the University of Nairobi’s University Students Community Organization (Uniscoo)  has developed a prepaid card for university students. Uniscoo which has 25,000 students seeks to encourage good money management among students through the use of the prepaid card powered by MasterCard.

Credit Scoring the Informal Worker

Documenting the informal economy has been a challenge, the importance of which is increasingly being seen in recent banking, real estate, consumption and other economic statistics that, thanks to data from Telco’s about m-pesa and other money transfer systems, shows up as a grey ocean of money flowing (daily) through the economy that amounts to a significant fraction of Kenya’s GDP. 
But how about the users who are moving this money? Can they derive credit worthiness value from  this information that is being captured? i.e. These are the self-employed workers, and people without payslips or steady banking habits, but who have some scanty history with banks, savings societies, church groups, or utility companies. 
But now with services such as SelfCare from Safaricom, one can see three months of M-Pesa transactions – and in the last three months, funding a project outside Nairobi, I’ve deposited about $3400, sent about  $2800, withdrawn $200, received $150, and bought $100 of airtime.
All that should qualify for more than a Khs 2,000 ($25) instant loan from Safaricom/CBA’s, M-Shwari, but since it’s a new system, it may be too early to determine the credit worthiness of a borrower, using their  M-Pesa history alone. Selfcare could, with time, become more useful, allowing users to export or print statements,  older than three months, and other financial institutions to access & review the data  – and with that, a hawker, taxi driver, or other self-employed worker, without a formal banking history could generate a decent, mature,  credit position to discuss with a new bank.