Category Archives: SME solutions

FSD Kenya Insights on Youth and Agri Finance

FSD Kenya, which aims to create value through financial inclusion, have just released their 2017 Annual Report which contains findings from ongoing research projects around Kenya.  

Some excerpts 

  • The unregulated digital credit space in Kenya, mainly phone loans, has overtaken other forms of credit in the country with 19% paying digital loans, much more than 17% repaying family/friends or 14% paying shopkeepers for goods taken on credit. 
  • 45% of borrowers through mobile phones are now female. Usage has shifted from day-to-day to investing in businesses, but 14% are (900,000 individual) are juggling multiple loans, and half have defaulted or delayed loan repayment.
  • Tweaking Agri-Finance: There is lack of access of credit to agriculture which receives just 4% of banking credit. This could be partly due to lack of data so they are partnering with M-Kopa Labs to research other models. Hall of M-Kopa customers make money from agriculture and buy solar products so the research aims to see of if the pay-as-you-go model can be applied to other products like farm inputs, water tanks, fertilizer, animal feed etc.
  • Youth Finance products: 40% of the population is under 15 years but youth are underserved by the banking sector. They see money as a means of survival and savings as being for buying something not long-term or unanticipated needs. There is a lack of appropriate financial products for the youth, and this could be because older adults are the ones developing financial solution for the youth. One outcome of this research, funded by Funded by SIDA and the Bill and Melinda Gates Foundation could be a new class of lending to the youth, a development by FSD Kenya and the Kenya Bankers Association. 

  • They are also involved in the Kenya Hunger Safety Net program in which the government transfers Kshs 20 billion ($200 million) a year to people over 70 years.
  • Visiting economist John Kay gave a lecture where he advised that Kenya should develop local financial solution and not adopt western financial models.
  • Smartphone uptake still low, but USSD is how Kenyans can access robust banking services with cheap handsets.

Credit Cards Moment: AmEx and MasterCard take on Visa in Kenya

Central Bank of Kenya (CBK) statistics from the first quarter of 2018 show that there are 120,000 locally issued credit cards and 18 million debit cards/ ATM cards. With interesting patterns of credit cards usage over the last few years, for various reasons, there are some new entrants out to take on ubiquitous Visa-branded cards in Kenya.

MasterCard: GT Bank Kenya is rolling out a series of World MasterCard credit cards. The Gold and Platinum cards come with perks of travel and rewards including international airport lounge access, complimentary nights at 175 Starwood Hotels, luxury apartment discounts and Hertz Gold Plus car rentals along with enhanced insurance benefits that are easy to claim and a 24/7 concierge who offers personalized travel services. There are also tailored dining offers for Diani, Kisumu, Malindi, Mombasa, Nairobi. Ukunda and Watamu as well as towns in Nigeria.

Previously, one of the most-popular MasterCards on the market was the prepaid global card by Nakumatt that was supplied by KCB and Diamond Trust banks. They have been inactive since early this year following Nakumatt’s difficulties that started before the supermarket chain went under voluntary administration.

American Express: Also, Equity Bank and American Express have just extended their 2013 partnership. The bank which issues the American Express Green Card and Gold Card is the sole issuers of the globally accepted American Express cards in East Africa. With the signing of a now exclusive merchant acquisition agreement, Equity will be the sole merchant acquirer of American Express card transactions and will manage all aspects of merchant relationships including acquisition, statements, and marketing. Equity Bank earned Kshs 278 million in AmEx commissions last year, a 54% increase from 2016. The Bank also issues Union Pay, Diners, and JCB cards in addition to Visa and MasterCard.

Interest rates debate as caps repeal is proposed

Kenya’s Treasury Cabinet Secretary Henry Rotich has signaled an end to interest rates capping, saying the interest rate controls have contributed to a slowdown in credit growth to the private sector and denied small businesses’ access to credit.

In his FY 2018/2019 $30.4 billion budget speech to the National Assembly on June 14, Rotich said the interest capping law had not had the intended effect but instead resulted in banks shying away from lending to riskier borrowers such as ordinary businesses and individuals who used to borrow at rates above the 14% that was set through an amendment of the banking law that was passed a year and a half ago.

Rotich observed that he would ask parliament to repeal section 33 (b) of the Act to enable banks to provide more credit to riskier borrowers. He added that the government was also proposing a credit guarantee scheme for micro, small, and medium enterprises, and new credit institutions through the creation of the Kenya Development Bank and Biashara Kenya Fund and other new laws to help protect consumers of financial products.

The interest rates debate continues next week with a session on Monday, June 18 at the Strathmore Business School that will facilitate debate on the impact of the interest rates ceiling and floor.

Organized by the Kenya Bankers Association (KBA), the Institute of Economic Affairs (IEA) and Fanaka Digital, among other partners, the televised session will feature perspectives from the Treasury Cabinet Secretary, MP’s Jude Njomo – who sponsored the 2016 banking amendment that capped interest rates, and Moses Kuria, who is a member of the Budget and Appropriations Committee.

Draft banking conduct and consumer finance laws in Kenya

In a move that may weed out practices that led to the introduction of interest rate capping, the Kenya government has developed a draft Financial Markets Conduct Bill for consumer finance protection.

Some clauses in the bill of interest:

  • Advertising: A person without a financial conduct license cannot put out an advertisement for the provision of credit. This also applies to building owners (billboards?), or in newspapers, magazines, radio, television.  Also, lender advertisements must be truthful. They cannot be misleading by deception.
  • Credit Limits – cards/overdrafts: Once a credit limit is approved, a financier can’t reduce the credit limits or decline to replace a lost credit card
  • Credit ReferenceNo release of  credit reports to unauthorized people
  • In-Duplum: There is also roundabout way of reintroducing the in-duplum rule. There is a clause that if a loan goes into default, the interest, fees, and other charges to be repaid cannot exceed the balance of the loan on the day it went into default.
  • Insurance: Loans cannot require a borrower to get insurance from a specific company.  
  • GuarantorsThe new laws protect guarantors and requires that they be made aware of all clauses in loan contract before they give guarantees, and with no variation to guarantor terms allowed. This is probably inspired by one guarantor and default dispute involving a cousin of the President that has seen over a dozen cases litigated in several courts over 25 years.
  • Pre-Receivership Management:  The Central Bank of Kenya (CBK)  can appoint a person to assist an institution to implement its directives when the CBK believes a bank or its officers are not in compliance with the act. The new law provides tools to assist troubled banks without shutting them down, and CBK can also order some shareholders to wind down their interest in institutions within a specific time.
  • Spam messages? Bank shall not communicate marketing messages to customers unless the customer loan agreement authorizes it.  
  • Statements: Requires all borrowers to be given term sheets before signing for loans, and a  copy of the loans contract afterwards. They are also entitled to a free statement every six months and other copies within ten days of a request.
  •  Variations: loan agreements shall not have clauses to vary interest during the loan, or be based on a different rate other than the reference rate of the lender.  
  • Wide Regulation: The new laws will apply to all providers of more than fifty loans and issuer of loans have six months to obtain the new licenses. What of loan apps?

Whether this new law which cracks down on unsavoury banking and consumer finance and behaviors will ease out the 2016 interest rate capping law while assuring parliamentarians who  championed the setting of maximum interest rates that bank behaviour will be better-regulated remains to be seen. Also if the clauses will help borrowers who have shifted to other more expensive lending platforms regardless of the consumer finance terms and interest rates charged there.

But the bill also creates a host of new financial regulators including; (i) a Financial Markets Conduct Authority (ii) Financial Services Tribunal (iii) Conduct Compensation Fund Board (iv) Financial Sector Ombudsman (v) an Ombudsman Board who may trip over other existing financial regulators.The bill is in the public participation stage and interested persons can send in feedback on its clauses to ps_at_treasury.go.ke before June 5.

SheTrades Commonwealth Launches

The International Trade Center (ITC) has launched a women-economic empowerment program for female entrepreneurs to be able to trade across borders.

“SheTrades” aims to grow one million female entrepreneurs, and is starting with Kenya, Ghana, Nigeria and Bangladesh, in export-ready fields of apparel (textiles), agriculture (tea, coffee, avocado) and services (ICT, tourism). The program will offer training, capacity building and support to enable women, entrepreneurs to be more competitive, and prepare their companies for export markets such as through obtaining certifications, connecting to buyers and being able to talk they way into deals.

The SheTrades program is based on seven principle of quality data, fair policies, public procurement, striking business deals, enabling market access, unlocking financial services, and securing ownership rights. Kenya is acknowledging for having female supportive laws such as setting aside 30% of government procurement for women, youth and persons with disabilities, though the uptake of this has lagged. It also has some women-focused funding initiatives while Barclays Kenya has a program with ITC  to increase women’s access to international trade opportunities.

SheTrades is funded by the UK’S DFID and the SheTrades Commonwealth Kenya initiative is open to companies that are at least 30% female-owned and female-managed are eligible for sign up on the SheTrades website.