Category Archives: Matatu

SWVL and Little shuttles shut in Kenya

Unique shuttle services by SWVL and Little Ride were ordered to halt operating this week by Kenya’s transport regulator, the National Transport and Safety Authority.

Excerpts from a recent  column about the services:

SWVL has interesting routes all over Nairobi from residential areas to business hubs. Examples are for people who make daily commutes from Ruiru or Kahawa Sukari to offices in Westlands, or others who live in Kitengela and work in Upper Hill. Traditionally they would have to use two (matatu) vehicles and walk across the central business district (CBD) which they only pass because it is where most bus routes terminate. 

 But now, enticed with free introduction rides, they can get to work in half the time, by booking a ride in advance on an app, and paying a flat fee of Kshs 200 per journey. Some get to ride in comfortable shuttles with Wi-Fi, not the old, creaky matatus, that serve many ‘posh’ areas of Nairobi. Little Shuttle has now branched into long-haul services with several daily trips between Nairobi and Nakuru.

The news was first revealed by Kamal Budhabhatti, Chief Executive of Little in one of his regular email updates to customers of Little. He noted that the shuttles they used were from partners who were fully licensed  but that the NTSA had said it was not the correct license. 

He asked that the NTSA do dialogue with them as a technology companies trying to change public transportation through a popular service that had run for almost a year and which has been very popular. He added that when Safaricom launched M-Pesa there was no regulation on mobile  money and that the Central Bank of Kenya was able to come up with a legal model afterwards. He also wondered if the decision to stop Little was instigated by pressure from the public transport cartels.

On the SWVL side, the General Manager, SWVL Kenya, Shivachi Muleji, stated that: We have been engaging with the government and are still in the process. There have been a few milestones and we are happy with the progress. We’ll remain committed to ensuring that we build a business that’s fully compliant.

Government Initiatives: Meanwhile the Government’s plan for Bus Rapid Transit system and a Nairobi Metropolitan Area Transport Authority (NaMATA) are still at the drawing plan stage. It’s also been a few years since Google and Equity bank tries to reorder the finances of the public transportation sector.

Matatu IPO

There was a small advert in the Nation this week for a private placement to raise Kshs 600 million ($7.5 million) as investments in the public service vehicle (PSV) transport business.

The promoters, PSV Investments, say they have already invested in PSV’s, commonly known as matatu’s, through transport companies, savings & credit societies (SACCO’s), and individual owners. They are selling 6 million shares at 100 shillings each, with a minimum investment of 5,000 (~$62) for individuals and 100,000 (~$1,250) for institutions, and the Vice Chairman is Dickson Mbugua who’s often on TV defending the Matatu industry as an official and a spokesman. It opened on May 17 and closes on July 3.

The PSV business is one which has had difficulty getting organized investments because if the poor reputation of the business. This is because of the reckless driving habits of drivers, gangs involved in management, insurance claims & losses.

(this matatu ran me off the road this morning, and I had to drive on the pavement to avoid an accident)

Nevertheless, matatu owners are able to obtain loans from some banks but who limit their exposure by financing less than they would for an individual e.g. where a bank may finance 80% or higher of a vehicle cost, for a matatu that’s only about 50% with the owner paying the difference. In some cases they also shorten the repayment cycle to weekly installments, instead of monthly, to prevent diversion mismanagement of cash as a matatu generates (and spends) most of is cash on a daily basis.

SACCO’s have a reputation for running the best matatu businesses, and listed transport company, Express Kenya, has also invested in the PSV business via KBS and Citi Hoppa, as detailed at last year’s invested in PSV business, as discussed at their 2009 AGM.

Private placements are riskier in terms of entry and exit, and I’m dealing with two unique placement cases now: one with an investor who wants to exit from a minority shareholding, but at a greater price than the majority shareholder will pay and another placement in which the promoters have been incommunicado for six months after urging investors to buy into a company. It’s not clear if the CMA is aware of this or if there is a transaction advisor or prospectus for the company.

Matatu (PSV sector) financing

While NIC Bank is well known for its MOVE banking concept, its asset finance scheme has also been very popular for the Kenyan’s eager to enter the matatu business.

The Michuki rules have made it easier for new entrants to break into what used to be a murky sector – and NIC has been the financier of choice. The Bank has allocated the PSV sector 35% of its asset finance portfolio. According to the Bank’s head of asset finance, Edna Kihara, the minimum loan amount is 300,000 and with loans processed within 48 hours, this has proved to be very popular.

Other terms are that: (1) only new matatu’s financed – no used or ex-Japan vehicles (2) owner deposits 40% (3) 1-3 year loan (4) insure vehicle comprehensively (5) joint registration with NIC (6) commitment fee of 2%.