Kenya: CBK Licenses the ninth deposit taking Microfinance Institution – U & I Deposit Taking Microfinance Ltd
The Central Bank of Kenya (CBK) has granted a licence to U&I Deposit Taking Microfinance Limited (hereafter referred to as U&I DTM Limited) to carry out community deposit-taking microfinance business. The licence has been issued pursuant to Section 6 (1) of the Microfinance Act, 2006 and Regulation 5 (3) of the Microfinance (Deposit-Taking Microfinance (DTM) Institutions) Regulations, 2008. U&I DTM Limited becomes the ninth deposit taking microfinance institution (DTM) to be licensed following the licensing of seven nationwide DTMs (Faulu Kenya DTM, Kenya Women Finance Trust DTM, SMEP DTM, REMU DTM, Rafiki DTM, Century DTM and SUMAC DTM) and one community-based DTM (Uwezo DTM). U&I DTM Limited, which is the second community DTM to be licensed under the Microfinance Act is a wholly-owned Kenyan company limited by shares, intends to operate within the Nairobi Central Business District (Starehe Division).
U&I DTM Limited has set up its head office cum branch along River Road (Asili Complex Building next to Kampala Coach Booking Office), Nairobi. The Applicant intends to begin operations with one flagship branch with intent to expand with time. Previously, the entity was engaged in credit only microfinance business before they transformed to a community DTM. The DTMs primary focus is the Micro and Small Enterprises (MSEs) as well as the financially excluded populations. The DTM also intends to target institutional-based employees in schools, colleges, restaurants, factories, and manufacturing industries situated in the Nairobi Central Business District (Starehe Division).
It is reported that micro, small and medium enterprises (MSMEs) and the informal sector represent over 90% of private businesses and contribute to more than 50% of GDP and account for about 63% of employment in most African countries. These enterprises thus form an integral part of the Kenyan economy by providing employment opportunities and contributing to economic growth and sustainable development. Despite these opportunities they face many challenges, including access to finance, which is often considered to be their most significant challenge. The Central Bank has thus been in the forefront in developing an all-inclusive financial system that reduces impediments to accessing finance, including MSMEs financing. The Central Bank has initiated, and will continue to support, reforms to develop effective legal, regulatory and supervisory frameworks that support innovations to enhance the development of MSME financing and growth.
The licensing of U&I DTM Limited to focus on MSMEs as one of its key niches thus reiterates the Central Bank’s commitment to the development of an all-inclusive financial system that serves different market segments with appropriate products. This is in line with CBK’s mandate to enhance financial inclusion and promote economic growth in Kenya, which are key tenets of Vision 2030.
By Charles Mwaniki, Business Daily
Microfinance institutions that got Central Bank of Kenya’s approval to collect customer deposits have raised nearly Sh7 billion in about two years, the lenders’ financial statements for 2012 show.
This has given the deposit-taking microfinance institutions (DTMs) headroom to cut their reliance on expensive borrowings as increased customer deposits provide an alternative source of cash.
The 2012 financial results of Faulu Kenya DTM, Rafiki DTM, SMEP DTM and Kenya Women Finance Trust (KWFT) DTM show their collective customer deposits rose by 168 per cent, from Sh2.6 billion in 2011 to Sh6.9 billion in 2012.
Borrowings on the other hand went up by only four per cent in the second year since the DTMs were licensed, while the income from interest on loans went up by Sh1 billion or 23 per cent, reflecting the expanded loan books.
Faulu Kenya for instance saw its loan book rise from Sh3.3 billion in 2011 to Sh5.03 billion last year. Its borrowings went down from Sh2.42 billion to Sh2.16 billion as customer deposits rose by Sh2.35 billion to stand at Sh2.98 billion in 2012.
Rafiki general manager George Mbira said the increased customer deposits had helped them reduce the dependence on borrowed funds.
“We now have close to Sh600 million in deposits, helping us expand our loan book. For us, when we borrow in foreign currency, we can get a good rate of about four per cent, but when you factor in hedging costs the rate rises to around 15 per cent,” said Mr Mbira.
This increase in income helped three of the DTMs record big rise in profitability, with only KWFT recording reduced profits from Sh302.4 million in 2011 to Sh173.8 million in 2012 following an increase of Sh345 million in staff costs.
Faulu Kenya net profits for 2012 went up by 119 per cent from Sh25.6 million in 2011 to Sh58.2 million. SMEP reported a 104 per cent rise in net profit to Sh53 million from Sh25.8 million in 2011.
Rafiki turned around a net loss of Sh15.4 million in 2011 into a Sh5 billion profit in 2012.
Remu, Century and community-based Uwezo DTM are yet to report their full year results, having been set up less than one year ago.
Mr Mbira, however, noted that there were challenges for DTMs seeking to establish their presence in the market given the stringent regulations and problems with capital and technology.
“We are lucky because we have a banking background with our partner bank (Chase Bank). For DTMs, the infrastructure costs to set up banking halls are high, up to Sh70,000 per square foot, and also setting up the technology required. Customers are used to high standards in banks, and you have no choice but to keep up,” said Mr Mbira.
The rules hit harder on microfinance institutions seeking to convert to DTMs than those setting up as DTMs from the onset. SMEP chief executive Phyllis Mbungu said that while mobilising customer deposits is slower than they would like, they expect CBK and Treasury to change rules to allow DTMs attract big depositors.
“At the moment we are not able to offer current accounts or cheque books. We expect the regulatory framework to change to clear these hurdles and enable us attract the big savers,” said Ms Mbungu.
DTMs are also at a disadvantage when it comes to provisions for bad loans as they are supposed to classify a loan that is not serviced for more than three months as a loss, while banks have 12 months.
Ms Mbungu said the outlook remains bright, adding that her institution is eyeing a key role in disbursing the Sh6 billion women and youth fund promised by President Uhuru Kenyatta.
By Charles Gichane, Capital FM
Small and Micro Enterprise Programme Deposit-Taking Microfinance Limited (SMEP DTM) is hoping to use proceeds of the ongoing Sh1.6 billion share offer for ICT investments and infrastructure upgrades.
SMEP DTM Chief Executive Officer Phyllis Mbungu said the money raised will be used to raise the working capital in order to boost its lending capacity in the market and promote its deposit taking products as the company gears towards transforming into a fully licensed commercial bank in Kenya.
“The licensing of SMEP by the Central Bank of Kenya means the institution has had to ensure that it meets its growing market demands by expanding its business units, upgrading its information technology hub and enhancing the company’s asset base,” she said.
“Another reason we’re offering our shares is because there’s a need to dilute the shareholding of the National Council of Churches of Kenya (NCCK) as the only beneficial shareholder, in line with the requirements of the Microfinance Act,” she explained.
The share offer began on October 16 and is set to conclude on November 30. Mbungu explained that NCCK was offloading part shareholding to comply with the Microfinance Act, which requires no shareholder to own more than 25 percent of their total shares.
The Microfinance Act 2006 sets out the legal, regulatory and supervisory framework for the microfinance industry in Kenya and it became operational with effect from May 2, 2008.
The principal object of the Microfinance Act is to regulate the establishment, business and operations of microfinance institutions in Kenya through licensing and supervision and it enables Deposit Taking Microfinance Institutions licensed by the Central Bank of Kenya to mobilise savings from the general public, thus promoting competition, efficiency and access.
Finance Minister Robinson Githae noted that the initiative will be implemented due to the need for enhanced access to financial services to Kenya’s bankable, who remain totally outside the scope of these services because of high costs.
“The financial sector transformations and reforms being undertaken are based on the three pillars of stability, efficiency and access and they are translating into increased financial inclusion, which consequently spreads financial services to the poor,” he said.
“Financial inclusion actors globally believe that poverty can be reduced sustainably and consistently with access to finance, because it allows the poor to develop a savings base and enlarge their asset base, which helps them survive economic shocks and escape poverty,” he explained.
SMEP DTM boasts over 150,000 clients with an outstanding loan balance of approximately Sh1.5 billion and Githae acknowledged that the organisation has come a long way since its inception in 1975 as a small project of the NCCK under the Small Scale Business Enterprise.
He explained that the project was initially aimed at providing the poor in a number of slum areas with food and later small business grants, before it was modified, developed and evolved into a micro credit company that was registered as a company in 1999.
“The transformation into a deposit taking microfinance institution has enabled SMEP DTM to offer savings products to its clients in addition to the loans products, while growing its resource base due to the build up of deposits base,” he said.
“On its part, the government will continue to deepen structural reforms aimed at promoting access, efficiency and stability in the financial sector and we’re also fast tracking implementation of financial sector reforms at the regional level to expand our financial market, while promoting financial integration and stability,” he added.
He pointed out that over the past few years, the Ministry of Finance, through the Central Bank, has embraced policy reforms to build an adequate financial infrastructure to support the development and deepening of the sector.
“We expect SMEP DTM and other reputable financial institutions to take full advantage in developing deeper financial investments in the quest to meet the ever growing needs of our people to leverage on additional equity capital to offer financial services,” he said.
Deposit Taking Microfinance Limited (SMEP DTM) has announced plans to make a restricted (unlisted) offer of shares to selected group of investors to raise capital to finance its national expansion drive.
The deposit taking Microfinance Institution (MFI) is targeting SMEP DTM customers and employees and members of the National Council Churches of Kenya (NCCK)
The transaction is still subject to the Capital Markets Authority (CMA)’s approval.
In a statement issued on Wednesday SMEP DTM Chairman, Gabriel Kivuti, said much of the funds would be used to change the company’s financing mix to reduce reliance on debt finance while lending to customers.
“This will result in improved cost of funds, increased customer satisfaction, more customers and better margins,” he said.
Kivuti said the funds would also be used to finance the development of a new office building on its current property in Kilimani, Nairobi, upgrade a number of its outlets into deposit taking branches, and operationalise the agency services for its satellites and marketing units – including third party agencies.
He noted that SMEP DTM’s principal shareholder – NCCK – would face significant dilution in the project.
“NCCK believes the Church ought to reposition itself to play a more active role in economic development. To achieve this goal, the huge potential of the Church must be consolidated,” said Reverend Cannon Peter Karanja, NCCK secretary general.
“SMEPDTM is the tool to for realising equitable wealth creation and economic empowerment.
By pooling the common wealth of the Church, SMEPDTM gives the Church an opportunity to change the destiny of this country.”
SMEP DTM has appointed Standard Investment Bank (SIB) Ltd as Lead Transaction Advisor, and SIB and Financial Analytics Ltd as Joint Financial Advisor.
SMEP DTM has an asset base of over Sh2 billion and has generated over Sh10 billion in cumulative loans to over 145,000 customers.
It has a national footprint with 42 offices and 276 staff.
SOURCE: Standard Media
By Geoffrey Irungu Business Daily Africa
The Central Bank of Kenya has placed a high moral standard for businesses seeking to distribute financial products from deposit-taking microfinance institutions (DTMs).
The measures aimed at protecting customers will see the agents require references from the provincial administration, religious leaders and credit reference bureaus among other disclosures on behaviour and financial standing.
The Central Bank said the new guidelines would ensure that the agent “will not compromise safety, soundness and supervision of the DTM sector”.
The DTMs currently in operation include Faulu Kenya, Kenya Women Finance Trust, Uwezo and Small and Micro-Enterprise Programme.
The regulator said there were now nearly 9,000 agents for commercial banks who have handled it 5.92 million transactions valued at Sh28.7 billion.
“In order to enhance the inclusivity of the financial systems, the Central Bank is to extend the agency model to the microfinance sector.,” said a circular from Frederick Pere, the director of bank supervision. “The third parties to be contracted by the DTMs will be approved by the Central Bank of Kenya.”
The directive allows the institutions to appoint only the agents who have been running a commercial activity for at least a year and have a good credit record. The agent will also require secure premises and competent personnel.
According to the rules, the entities that will be eligible for appointment as agents include limited liability companies, sole proprietorship, partnerships, societies, co-operative societies, state corporations, trusts, public entities and any other entity which the Central Bank may prescribe.
Also to be provided are audited financial statements for corporate entities or certified financial affairs in the case of sole proprietors or partnerships for the past 12 months immediately preceding the date of suitability assessment.
Where it is a sole proprietor or a partnership, a certificate of good conduct or a letter of recommendation from the local chief, a registered religious leader or a regulated financial institution where the proposed agent holds an account.
Patrick Lumumba, a senior programmes officer at the Association of Microfinance Institutions, said many DTMs now have the option to convert their marketing offices and branches into agencies in line with the provisions.
“Some DTMs were opening high-tech banking offices or branches in order to increase their reach. They can now appoint new agents as well. We can say these rules have made things clearer,” said Mr Lumumba.
CBK first rolled out the agency model in the banking industry in 2010.
The rules say that a DTMs may require a director, shareholder, sole proprietor, partner, manager or any other officer or employee of an entity to be vetted if the vetting of that person is necessary for do the business.
“Prior to engaging an entity as an agent, an institution shall assess the moral, business and professional suitability of the sole proprietor or partners of an entity proposed to be appointed as an agent,” says the rules.
By Martin Luther Oketch, Daily Monitor
At least 71 per cent of Ugandans aged 16 and above are engaged in some form of saving, statistics at the Ministry of Finance shows. The data indicates an improvement after years of a low savings trend in the country.
Presenting a paper during a public dialogue in Kampala last week, Mr Moses Kaggwa the commissioner for Microfinance in the Ministry of Finance said 17 per cent of Ugandans save with the central bank’s regulated institutions, 4 per cent with Saccos and Micro Deposit Taking Institutions whereas 31 per cent use informal saving methods. He said: “People with higher education save mostly with banks and other formal institutions.”
Whereas, according to Mr Kaggwa, most of the low income earners save to meet their daily needs, and to minimize risks, this has led to an improvement in productivity. Saving is a fundamental importance to families and individuals as it enables the transformation of economic resources. It also finances productive investments, which is one of the sources of increasing personal or national wealth.
Drawing global examples, Mr Kaggwa said about 2.5 billion adults globally do not use formal sources to save or borrow. He said 42 households in Bangladesh save an average of $144-only 9 per cent in formal sources whereas 48 per cent households in India saved an average of $167-21 per cent in formal sources.
In South Africa 152 households saved an average of $676-42 per cent in formal sources. The data shows that, although the numbers of banks have increased in recent years there is a lack of a well-established network of banks in rural area, which says hinders the rural population from making formal savings.
By George Ngigi, Business Daily Africa -
Newly licensed deposit-taking micro-finance institutions (MFIs) are turning to development financiers for funds since customer deposits have failed to measure up to the demand for loans.
The Kenya Women Finance Trust (KWFT), which was early this year licensed to collect deposits, last week signed a Sh535 million seven-year loan with Proparco, an investment fund owned by the French government, and Sh215 million with Grameen Credit Agricole Microfinance Foundation.
It also received a Sh500 million loan from Oikocredit last month.
Managing director Mwangi Githaiga said the micro-financier wanted to bridge a widening gap between demand for loans and new deposits from customers.
He said loan applications have been on the rise since the lender got a deposit-taking licence from the Central Bank of Kenya (CBK).
“The credit appetite is still higher than the savings rate,” he said.
KWFT had 415,965 customer accounts and held total deposits of Sh5.6 billion at the end of October, while the loan portfolio stood at Sh11.6 billion.
Faulu Kenya, the other licensed deposit-taking micro-finance lender, also has in its books a Sh450 million credit line from Standard Chartered Bank and the International Finance Corporation.
The reliance on external funds has made micro-lenders charge relatively higher interest rates than conventional commercial banks since they are forced to factor in higher profit margins to repay the debts.
Carol Mulwa, the country manager of Oikocredit Kenya, a development finance institution, said the interest rate on loans to MFIs and NGOs is determined by risk analysis conducted on borrowers.
“We load a certain risk rate, dependant on the customer, to our base rate. Averagely, the rate lies between 10 per cent and 14 per cent,” said Ms Mulwa.
CBK data shows the current average interest rate paid by banks on deposits is 1.47 per cent, making customer deposits a cheaper source of funds as it yields a wider interest spread for the lenders.
KWFT’s current lending rate is 1.4 per cent per month (pegged monthly as some loans mature in less that a year), which translates to an annual rate of approximately 16.8 per cent.
Faulu Kenya lends at an average yearly rate of 18 per cent.
The cost of mobilising deposits is high as institutions have to put in place measures to ensure they adhere to the set regulations that seek to protect public savings.
They also have to bear increased construction costs while rolling out branches.
“Transforming into a deposit-taking institution had significant cost elements for us. We had to upgrade our IT system so as to cope with the increased business and also meet the new regulatory reporting requirements. We have been opening one deposit-taking branch at a time and currently we are at seven branches,” said Mr Githaiga.
Faulu Kenya reported an after-tax loss of Sh49 million last year, a reverse from profits of Sh11 million in the previous year.
The management attributed the decline in performance to the transformation process.
MFIs yet to be licensed as deposit-taking institutions have to seek external funding so as to meet customer needs. Last week, Oikocredit disbursed loans to micro-lenders.
The money was given to Pamoja Women Development Programme (Sh120 million), Small Medium Enterprise Programme (Sh100 million), AAR Credit Limited (Sh50 Million) and Molyn Credit Limited (Sh50 Million).
The loans are intended to expand the loan portfolios of these institutions.
“We mainly support SMEs and they usually have seasonal businesses that push them to seek simple funding. The demand now is being pushed by the festive season, which will be closely followed by the schools’ reopening before the agricultural season sets in,” said Lydia Anyangu, the CEO of Molyn Credit Limited, which has 19,000 clients with a loan book of Sh180 million.
By Victor Juma, Business Daily Africa -
It is joining Faulu and Kenya Women Finance Trust, which got deposit permits in May 2009 and April 2010 respectively. Uwezo will take deposits from a restricted region — Starehe division in Nairobi.
The law requires different capital levels depending on reach. The minimum core capital requirement for nationwide and community deposit-takers is Sh60 million and Sh20 million in that order.
“While a nationwide DTM (deposit-taking institution) may establish operations in any part of the country, those of a community DTM are restricted as prescribed by law,” read a part of a statement from the Central Bank.
A community-based institution “is mainly focused on a target market that seeks accessible and efficient financial services.”
By taking deposits, the micro lenders will be able to reduce their cost of operations which can in turn lead to lower lending rates.
According to a recent study by Financial Sector Deepening (FSD), about 90 per cent of MFIs depend on debt funding from domestic and international sources.
This has made them charge interest rates higher than banks as they seek to repay the debts while maintaining profit margins in the business of lending to the bottom of the pyramid.
Despite their high interest rates, MFIs have remained the most preferred source of credit after friends and family, a fact analysts attribute to flexibility and superb customer service.
MFIs are expected to play a more active role in grassroots finance with the creation of 47 counties that will receive substantial revenue allocations from the central government.
CBK said the first two deposit-taking micro-lenders had deposits amounting to Sh7.3 billion and a loan portfolio of Sh14.8 billion by September. The two have a combined 597,633 active deposit accounts.
“The Central Bank of Kenya will continue to reform policy and regulation with the aim of enhancing the level of financial inclusion in Kenya,” the regulator said, adding that it is reviewing guidelines to incorporate DTMs in the recently launched credit information sharing plan.
Banks have started sharing information on loan repayments, a move that is expect to significantly cut down on defaults and reduce the level of loan loss provisions, which will free more cash for lending.
However, MFIs face the challenge of managing lending risk given the inherent exposure to low income borrowers who have thin assets to secure debt.
The regulator also announced plans to allow DTMs to venture into agency banking using technology-based platforms, a move that would further boost access to financial services in the rural areas. Most MFIs are concentrated in Nairobi.
By Matilda Nzioki, Standard Media -
Dr Jennifer Riria, a distinguished micro-finance banker and gender specialist, is the chief executive officer of Kenya Women Group.
She lets us in on what the award winning and the country’s largest micro-financing institution Kenya Women Finance Trust (KWFT) has been up to. She has spent her adult life building and contributing to systems on women’s empowerment and development.
|Dr Riria: Photo: Courtesy|
KWFT recently changed the company name to Kenya Women Holding Limited.
EVE: What are the roles of the company?
RIRIA: We focus on the non-financial aspect of the women’s lives, as money is not everything. The institution is focused on empowering and advocating for women. We give financial literacy—like how to make your money work for you.
We also hope to give women a platform to speak in one voice regardless of where they come from. At KWFT, we focused on poverty alleviation, but now we are incorporating financial capacity building of women and empowering them to be better placed economically.
KWFT, which is now a wholly owned subsidiary of the Kenya Women Holding Company Limited (KWH), will continue assuming the role of providing financial services. KWH owns KWFT a 100 per cent.
Kenya Women Group will continue serving poor families through women. All the activities run under my leadership as the CEO.
EVE: What are some of the company activities?
RIRIA: The organisation understands the life cycle needs of low-income women from the time they are young, through to their active years, up to old age. We are also linking women with the outside world, instead of having their lives focused on their villages.
Currently, we have a pilot programme in Kisumu, where we have led the women to own ponds to curb the ‘sex for fish’ menace among other ventures.
KWFT recently received its license from the Central Bank to start accepting customer deposits.
EVE: What are the advantages of banking with KWFT-DTM (Deposit Taking Microfinance) over other banks?
RIRIA: The bank is feminine. It is a woman’s institution, owned by the women. We have considered products that suit women first before looking at profitability.
In the banking halls, there are mother’s rooms, ladies’ rooms, and even an express lane for pregnant, old and disabled women.
So far we have banking halls in Eldoret, Kakamega, Mombasa, Nairobi and Nyeri, and we are looking at having 20 of them by April next year.
We are finalising plans with Kenswitch, so that our clients can access their money via the Kenswitch ATMs.
EVE: How does one join Kenya Women Group?
RIRIA: To enjoy our services, one has to be a member. It costs Sh200 to join and one renews with Sh100 every year. If one is a small income earner, they can join as a chama. We offer loans as low as Sh10,000.
EVE: Any challenges the organisation faces?
RIRIA: The culture of cashing in on everything has caught up with women. Some try to sue us when we use photos that they have authorised us to use.
There are others who refuse to pay their loans. They also use the media to say that the institution is making them poorer.
EVE: What are your plans?
RIRIA: This year, we intend to work with other partners on an empowerment intervention. We want to make a lasting impact on women. We also want to introduce a mentoring programme focused on the girl-child. Another thing that we are looking at is introducing other subsidiaries of KWFT. It is my dream to go regional and empower women from the larger East Africa Community.