Category Archives: SACCO

Digital App Loans: Understanding Borrower Behavior

An Interesting conversation was started by a tweet by Francis Waithaka on the true borrowing of costs of app loans that hundreds of Kenyans take every day by making a few clicks on their phones.

It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.

The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya”  had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.

At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.

Habits of Borrowers 

  • There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.
  • Majority of the customers took up loans to smooth consumption, emergencies or to boost business.
  • They don’t understand terms and conditions of app loans and they don’t understand credit reference.
  • There are three types of borrowers: repayers (who pay loans on time), defaulters  (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.
  • Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.
  • There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.
  • Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.
  • Digital credit, which offers privacy, is replacing shop credit and family/ friends as financiers.
  • The simplicity of the loan application procedures matters;  too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.

Phone Types 

Download a loan app or use USSd

  • App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.
  • Phones are mainly used for money transfer,  deposits, and withdrawals. There is little usage to get information or to browse the internet
  • 64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.
  • Loss of a phone may result in a  borrower defaulting on repayment.

Credit Reference Bureaus

  • Formal lenders require clearance from a credit reference bureau (CRB) which costs $22 (i.e Kshs 2,200) and that may exclude borrowers from formal finance. App loans don’t require this, e except that borrowers have not been black-listed.
  • One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.
  • Not all fintech’s report loans to credit reference bureaus.

App loan costs

  • High loan/interest charges are not a concern as they are comparable to other informal money lenders

At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a  CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.

Spire Bank Capital Injection

Spire Bank shareholders will hold an extraordinary general meeting at the end of November 207 to approve an increase in bank capital that has been eroded by recent losses at the bank.

At the November 27 EGM, shareholders will approve the creation of 100 million new shares, worth Kshs 500 million that will be allocated to Equatorial Commercial Holdings. Kenyan banks are to have a minimum core bank capital of Kshs 1 billion, and as at June 2017, Spire’s capital was down to Kshs 1.6 billion and the bank had a half-year loss of Kshs 307 million coming on the back of a 2016 loss of Kshs 967 million. Spire had Kshs 13 billion assets, Kshs 6.4 billion loans, and Kshs 7.6 billion deposits as at June 2017. But interest income and total income at the half-year was sharply down from that in June 2016 which could point to their performance trend for the end of 2017.

In 2015, Mwalimu SACCO one of the country’s largest credit societies bought out and rebranded the former Equatorial Commercial Bank as Spire. Equatorial had itself been formed from a merger between Southern Credit and Equatorial banks in 2010. 

Mwalimu SACCO has Kshs 37 billion in assets and Kshs 3 billion profit in 2016 and has over 70,000 members as owners.  This is the second bank capital injection by Mwalimu at Equatorial after another with the buyout. The shares will be allocated among Equatorial Commercial Holdings which owns 98% of Spire bank has shareholders including Mwalimu National Holdings (75%), Yana Towers (10%), A.H. Butt (8%), Yana Investments (6.75%, and who also own 11% of CBA) and N.N. Merali (0%).

M-Shwari, Equitel, and Mobile Lending Apps in Kenya

Just 24 hours apart, Equity Bank and Safaricom, which arguably have the most financial connections with Kenyan citizens, through m-banking, both made financial results announcements. Equity released their Q3 2016 results while Safaricom, whose year ends in March, was announcing their 2017 half-year results.

Safaricom has M-Pesa and also powers M-shwari at CBA and KCB M-pesa while Equity has Equitel a bank in a SIM card that gets around the barrier of the M-pesa. At the beginning of the year Equity had 8.8 million customers and the country’s largest bank – KCB had 3.8 million . They are surprisingly topped by CBA with 12.9 million customers, largely due to their partnership with Safaricom called M-shwari which allows savings and lending directly from a phone SIM card.

In the results this week, Safaricom reported pre-tax half-year profit of Kshs 34 billion derived from their 26 million customers solar-2Bphone-2Bchargerand their CEO said that they process about 21,000 M-pesa transactions per minute and that 2 loans are processed every second. M-pesa revenue increased by 33.7% to Kshs 26 billion, and message revenue grew by 8.1% to Kshs 8.6 billion (with the increase in premium rate SMS revenue probably attributable to sports betting /mobile gaming)

They now have 50,000 merchants using their cashless platform called Lipa na M-Pesa, and announced a waiver on person-to-person and Lipa Na M-Pesa transactions under Kshs 100 (~$1)  “We have done this to empower the people who support this company the most – the mama mbogas, the small businessmen, and the micro-agents who form our network.”

As at September 2016, Equity had a Kshs 15.1 billion pre-tax profit, an 18% increase over last year.  The Q3 results also showed a second straight quarter of reduction in loans at the bank from Kshs 222 to 221 billion. Whether this is due to the recent interest rate-capping bill or an absence of lending opportunities, or an economic pullback is not clear, but the deposits raised by the bank went to government treasuries which grew by Kshs 21 billion in the quarter.

Equity reaffirmed an ongoing commitment to shift in customer service channels from physical branches to phone and agents. In the first year of Equitel (their telco), it did 151 million transactions in the quarter 142% more than the year before. Equitel is now the second largest move of mobile money in Kenya – at 14%, being M-Pesa (84%)  but ahead of Airtel Money, Orange Money and Mobikash.

Equity Bank has also released a series of Eazzy banking solutions and tools including (an)  Eazzy App, Eazzy Chama (investment group/SACCO management tool) and (an) EazzyAPI (for developers to build on).

Away from the two, the World Bank’s CGAP blog recently highlighted and compared several phone-based borrowing / m-banking solutions and apps available to Kenyans. They are easily accessible but unregulated, and they vary their terms, credit scoring methods, limits (which range from ~S1 to $10,000) interest rates, duration,  and the ultimate cost to the borrower. They include;  Branch, Equitel (Eazzy Loan and  Eazzy Plus Loan), Jumo/ Kopa Cash, KCB-M-Pesa, Kopa Chapaa, Micromobile, Mjiajiri, M-pawa-Sacco, M-Shwari, Okoa Stima, Pesa na Pesa, Pesa Pata, Pesa Zetu, Saida, Tala, and Zindisha.

$1 = Kshs 101

Why SACCO’s Won’t Replace Banks

The banking interest rate cap came into effect last week and some banks, like Coop and KCB have set out to comply with the new rates for new loans. But some people have been saying that they will shift to SACCO’s if banks cut back on borrowing that they consider too risky to make at below the 14.5% set by the new law.

SACCO magazineBut SACCO’s won’t really replace banks.  SACCO’s (savings and credit society societies) in which members register, save, and borrow are very good vehicles for customers who understand their needs and have definite investment goals. They are able to borrow loans, at lower rates than banks and often without the need for collateral, usually by having other members guarantee each other.

But the amount members can borrow is  limited, usually by how much they have saved (you cannot borrow more than five times your savings, how much they have outstanding or how many loans they already have. Also you can’t borrow until you have been a member and built up savings for about six months. They require regular deposits, usually each month so this work with salaried people or disciplined savers. They also work well with rural societies and farmers, though some in sectors like coffee have been plagued by debts following crop failure or society mismanagement.

Finally, some SACCO’s uch as Mwalimu, Harambee, Kenya Police, and Afya have over ten billion shillings in assets, but most SACCO’s are smaller than banks and don’t have the credit to lena or range of products that banks do to lend to millions of borrowers. While some SACCO’s have bank-like services like cheque books, and debit cards, they also don’t have the range of financing – trade finance, overdrafts, credit cards that  bank customers are used to.

23 Things about the 23rd Home Expo (A Review)

For the second time in my life, I got time to go to the 23rd Home expo. I didn’t think it would be much fun being alone but the 4 hours I spent there definitely says a lot.

  1. Entry to the Expo: There were 2 options – to buy a ticket (200/-) or buy a ‘Homes Kenya’ magazine that came with a free copy and bag (350/-) I chose the latter. My mentor says that magazine has everything!
  2. Condos or Condominium if you prefer: I only used to hear about Condos in movies. They are now available in present day Kenya and this particular one cost a whooping 80M. Before going to a home expo, have a budget in mind. It will help you narrow down to what you are looking for.
  3. SACCOs: There was this lady who tried to convince me that there’s wasn’t a cooperative society but told her that is what exactly SACCO stands for. The investment information she shared, though, was good for making future comparisons
  4. Goals: You may have noticed this as a repeated comment on social media. Basically it says I aspire to what you are doing. My goal for going to the expo was to identify a dream house and thereafter pray towards it. Whilst there I got another reason to go for expos, business ideas!
  5. Friends: But the principal reason that saw me get into a matatu and head for KICC was because one of my besties has been looking for a house and keeps dragging me along for her trips. I wasn’t excited about the whole affair but the student has now overtaken the teacher
  6. Technology: And when I thought a presentation via an iPad was ‘it’, I walked into a hall where a number of exhibitors had ultra-high definition displays (UHDTVs) and you can be sure it helped move a dream into actual reality
  7. Everything: and I mean everything to establish a thriving real estate business was here. Generators, solar panels, roofing material, steel beams, sliding doors, kitchen tiles and even simiti was available
  8. Furniture: There was a stand with the most beautiful of mahogany pieces and it felt good to sit on them
  9. Kenya Yetu: Exhibitors came from all over the country were here. Western Kenya, Central Kenya and those from the Coast were well represented. What blew my mind though was this gated community in Red Hill accessed by a road 35 feet above it. The thinking to its designing was absolutely breathtaking!
  10. Dubai: Kenya is a very rich country one of the foreign exhibitors explained and therefore no surprise was it to see Emirati investors scouting for fellow investors
  11. Sales people: Extroverted ones, genius ones, clueless ones and those who knew you didn’t have a cent in your pocket but still went all out to make the pitch. One day I will make one of them commission happy. One day…
  12. Architects: Exhibitors who did not have the advantage of high-definition technology, used architectural models to convince their prospective clients. A closer look betrayed those whose final workmanship would be cheap. These things are (very) important
  13. Off Plan: The expo was not just about selling property but ideas and with ideas, one cannot just jump on board, without seeing the property’s location, knowing who the developers are, and investigating their previous portfolio(s). And what exactly does 58 square metres in comparison to 125 square metres mean? A lawyer? Does one have to have a lawyer?
  14. Chamas or Investment Groups if you like:were here and doing big, hairy, audacious stuff. I can tell you for a fact that those chamas have toiled to reach this live. I salute them!
  15. 2.5 bedrooms: Have you heard of this before? Me neither. But basically what it means that the apartment comes with 2 bedrooms and a miniature room that can either be used as a study area or extra bedroom.
  16. Serviced apartments: Still reeling on this concept because mine is to move from my rented flat to an apartment but when you hear the probable rents, it begins to make investment sense. At this point I pause to clarify that flat is what the Americans refer to as apartments and a condominium is a block of apartments or flats. Ça va?
  17. Marketing: In the entire tour, I only found one stand that didn’t have brochures. Those in the print business definitely made a kill but there was this one brochure where I overtly told the dealer that a “serviced plot behind Kitengela prison” caption scared the potential investment out of me
  18. Carpets: Carpets confuse me especially when there is so much variety of colour and texture to look at. The guy manning the stand generously explained to me the types best for different areas of flooring and I will definitely be looking for him should the opportunity present itself in future
  19. Sadolin: These guys saved me from my desperate such for a colour chart and offered theirs for free. They also gave me the exact type of paint that should be used on a bath tub. Such enthusiastic employees!
  20. Eisenkraft: This is a German company that exclusively sells tools for bending wrought iron at exhibitions. It looked easy and doesn’t every business idea look until you start consider the real resources needed
  21. KRA: The government was here not to collect taxes but to offer amnesty to homeowners. In short, no taxes accrue for the years between 1974 and 2013. For 2014 and 2015, taxpayers will be allowed to claim 40% in expenses and only pay 10% in taxes of the remaining 60% of rental income. For 2016, the 10% of the gross income when received must be paid to KRA. Returns (including nil returns) must be filed monthly i.e. by the 20th day of the consecutive month
  22. St. John’s Ambulance: The emergency services people were present but this time selling their very affordable courses for the individual, the babysitter, and the company.
  23. To do list: It would be a shame to go for such an exciting experience to go to waste and I have promised self to visit some upcoming properties.

 Make sure you visit the next expo!

Review by Tesha Mongi (Visit her blog