By Okuttah Mark, Business Daily Africa
Airtel Kenya marked telecommunication companies’ deepening foray into the financial sector with the launch of a mobile phone loan facility in partnership with Faulu Kenya, a microfinance provider.
Subscribers to Airtel Kenya’s mobile phone money transfer service, Airtel Money, will get loans ranging from Sh100 to Sh10,000 through the their handsets as the telecommunications firm seeks to grow revenues by launching new products.
Airtel Kenya will provide the mobile phone money transfer system, while Faulu Kenya be appraising and lending money to applicants.
“We intend to use the partnership to offer our current customers more reasons to transact and also increase our agency footprint to ease access of our service,” said Airtel Kenya’s managing director, Shivan Bhargava.
The loans are repayable after 10 days.
Interest charges range between three and 10 per cent, with higher values attracting lesser costs.
All Airtel money subscribers who have been on the service in the past six months are eligible to apply for loans, in the new service dubbed ‘Faulu Airtel Kopa chapaa Service.’
Borrowers need not be Faulu Kenya customers.
The applicants’ debt-repayment history will be cross-checked with the Credit Reference Bureau (CRB), disqualifying those who are already black listed.
Airtel Thursday said it intends to tap into the vast customer base provided by Faulu Kenya to ease the access of its mobile money services, especially in the rural areas.
Airtel has 6,000 agents across the country against Safaricom’s Mpesa which has more than 35,000.
The majority Indian-owned firm intends to tap into Faulu’s 14,000 agents across the country to tap more subscribers.
Central Bank of Kenya data shows that by December last year, Safaricom had 15.21 million mobile money customers making it the largest mobile money transfer service, followed by Airtel which had 3.16 million customers.
Yu had 520,000 customers compared to Telkom Kenya’s 130,000, MobiKash 110,000 and Tangaza 70,000.
Airtel expects to make money through commissions that it will be charged on withdrawals. Airtel Money charges Sh15 to withdraw Sh100 and Sh75 to withdraw Sh10, 000.
Faulu will seek to make money on the interest charges.
Airtel subscribers will apply for the loan from the convenience of their mobile phones by dialing *305# and following the menu.
Faulu Kenya managing director, John Mwara, said Faulu is exploiting technology to scale up its reach to the unbanked and semi banked by reducing costs of transactions, improving on convenience and ease of access.
“This innovation, when backed by an effective credit reference bureau, will complete mobile banking by ensuring offering of micro deposit mobilisation which Faulu already offers through Airtel money,” said Mr Mwara.
“We have put aside enough cash reserves for this and expect to be transferring an average of Sh1 billion to Sh1.6 billion daily within the next four months and an average of Sh4 billion by the end of the year.”
He added that the Kenya’s rural environment is characterised by poor communications infrastructure, relatively low population density, low levels of literacy and relatively undiversified economies and as such it is only the use of such technology platforms that can increase financial inclusion.
Airtel partnership with Faulu comes on the background of Central Bank of Kenya CBK report that shows that although transfer of money from person to person is still dominant, there is an increased use of mobile phone services by corporates.
Data from the CBK show that in the month of December 2011 alone, M-Pesa moved Sh116.6 billion, miles ahead of Tangaza’s Sh1.31 billion, which is about three times the combined share of the other four rivals for that month.
Airtel Money transferred Sh420 million, Orange and Yu Sh20 million each while MobiKash handled Sh4 million.
By George Ngigi, Business Daily Africa
Stringent regulations are making it hard for Central Bank of Kenya (CBK) licensed micro finance institutions to operate profitably, a new research has found.
The survey by Financial Sector Deepening (FSD) states that the conversion from a credit microfinance institution to a CBK-licensed, deposit taking micro lender is a costly venture that is made even more expensive by elaborate regulatory requirements.
“The current CBK requirements, especially with regard to branch security and prudential ratios, are not adapted to the microfinance business in Kenya. To encourage other organisations which are performing well to transform, a review of actual risks for DTMs would be necessary to lower some of the requirements and therefore costs,” reads the FSD report.
Faulu Kenya, Kenya Women Finance Trust (KWFT) and SMEP are some of the microfinanciers that have converted to deposit-taking institutions.
Some of the changes that the micro-finance institutions had to make include the installation of security devices, setting up new information technology infrastructure and recruitment of staff with a banking background.
“The challenge in transformation is not in meeting the regulatory capital requirements, but in realising the related costs to comply with the non-capital requirements.
Key among these is investment in ICT/MIS and the establishment of a deposit-taking infrastructure,” said FSD Kenya.
The micro-financiers were in agreement with the report, saying several amendments to the law were needed to address emerging bottlenecks.
“Most institutions are not able to meet those requirements because of cost; you can’t transform without Sh10 million and for most institutions their capital base is less than Sh50 million,” said Association of Microfinance Institutions (AMFI) CEO, Benjamin Nkungi.
Mr Nkungi said that institutions that set up as DTMs from the onset were not having a problem complying with the regulatory requirements, but those seeking to convert were bearing the brunt of the new laws. Newly set up DTMs include Remu and Uwezo DTM, with the latter being a community-based institution.
The ones that have converted have declared a drop in earnings in the first year of operation owing to high costs of conversion. Faulu Kenya was the first to convert to deposit taking in 2008, a venture that pushed them to losses of Sh130 million by end of 2010.
The conversion process also cut the net earnings of KWFT to Sh321 million from Sh676 million.
Since introduction of the DTM rules in 2008, CBK has amended them to allow for the use of the outlets that existed before the conversion as business units, said Mr Nkongi.
To ensure protection of customer funds, especially in the microfinance segment whose risk exposure is considered to be high, the Central Bank has been demanding higher reporting standards and loan provisioning from the lenders.
While DTMs are supposed to classify a loan that is not serviced for more than three months as a loss, the banks have six months to provide for the same.
“Yes you are trying to meet stringent rules, but it is good to determine the strength of the industry. We appreciate that when entering the financial sector there is need to interrogate those coming on board,” said Michael Gichohi, managing director of Uwezo DTM.
Mr Nkungi also said that limitation of shareholding for individuals or an organisation to 25 per cent is an impediment as most of the micro-finances were ran by NGO’s or individuals.
The rule, which is similar to regulations in the commercial banking sector, is intended to safeguard against domination by single individuals, which could weaken corporate governance standards.
“Existing shareholders are having problems getting new shareholders to come in with same financial muscle,” said the association executive.
Small and micro businesses across East Africa will benefit from the European Investment Bank’s new EAC Microfinance Facility, launched today. The initiative will encourage job creation and increase access to long-term funding for micro and small enterprises through experienced local intermediaries. Faulu Kenya DTM and Co-operative Bank Kenya joined the EUR 50 million scheme today as the first regional partners.
The East African Community Microfinance Facility, backed by the European Investment Bank, Europe’s long-term lending institution, allows experienced banks and microfinance institutions engaging in microfinance to receive local currency funding to support their financing of local business. Partner banks can also benefit from dedicated training and technical assistance to improve the effectiveness of this financial support to the private sector.
The East African Community Microfinance Facility was launched today in Nairobi by Group Managing Director, Co-operative Bank of Kenya, Dr. Gideon Muriuki, the Chairman, Board of Directors Faulu Kenya DTM Ltd, Mr. Ken Wathome and European Investment Bank Vice President Plutarchos Sakellaris, currently in Kenya on an official visit.
“The European Investment Bank recognises the strong demand for long-term funding from micro entrepreneurs and small business in East Africa. Working with experienced local partners will allow the East African Community Microfinance Facility to stimulate both the creation of new jobs and ensure funding is available for the missing middle. Starting today with two renowned partners in Kenya, I am confident that thousands of entrepreneurs across the region will benefit as the programme expands.” said Plutarchos Sakellaris, European Investment Bank Vice President.
“Co-operative Bank of Kenya has, since its inception, concentrated the bulk of its efforts on providing banking for the average Kenyan, either directly or through the Co-operative movement. This funding will go a long way towards entrenching the bank’s value proposition to this consumer segment”. said Dr. Gideon Muriuki, Group Managing Director Co-operative Bank of Kenya.
“Faulu Kenya is committed to providing holistic financial solutions to the economically active poor, micro and medium entrepreneurs through innovative products. This funding will greatly reduce the cost of credit to our customers and boost our efforts in outreach and building capacity in the Kenyan informal sector.” said Mr John Mwara, Managing Director, Faulu Kenya Deposit Taking Microfinance.
Co-operative Bank of Kenya customers in small and micro business will benefit from EUR 20 million in local currency the EIB has made available under the East African Community Microfinance Facility. Co-operative Bank, as one of the largest banks in Kenya, is well placed to support increased investment by small-scale private sector entrepreneurs across the country.
Faulu Kenya DTM will use EUR 4 million in local currency from the programme to support self-employed and entrepreneur owned micro and small businesses in Kenya. They became the first Kenyan licensed deposit taking microfinance institution regulated by the central bank in 2009 and are one of the largest microfinance institutions in the country.
Kenyan entrepreneurs will also benefit from technical assistance to support preparation of business plans, developing activities, improve management skills and increase operational efficiency. This is expected to improve the credit worthiness of financial beneficiaries. Where appropriate, partner banks will also receive specialist training to address credit risk management and product development.
The East African Community Microfinance Facility will be the first of three regional microfinance programmes that the European Investment Bank plans to launch in sub-Saharan Africa over the next three years. This will expand direct lending by the European Investment Bank to microfinance institutions. In East Africa this will target both those countries with a developed microfinance market, such as Kenya and Uganda, as well as countries with growing microfinance activities, such as Tanzania and Rwanda. A new lending programme to support small business lending in Kenya is also being launched today by the European Investment Bank.
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 George Ngigi, Business Daily Africa
Borrowers from micro-finance institutions (MFIs) have escaped the recent surge in lending rates that have seen the cost of loans from commercial banks jump to over 24 per cent.
The MFIs—which are generally funded through concessionary loans from international development institutions— have been spared the high cost of funds that banks have suffered following successive interest rate increases by the Central Bank of Kenya.
This has enabled the MFIs to hold their lending rates at just below 20 per cent, affording their customers lower cost of loans than what the commercial banks are charging.
“We have not changed our interest rates,” said Mr Peter Muthendi, CEO of Kadet Microfinance whose lending rate averages about 19.5 per cent.
Unlike commercial banks which are dependent on customer deposits to grow their loan book, MFIs rely on concessionary lending, mainly from international financiers, for funds to lend to customers.
Banks have in the last six months raised their minimum lending rates from around 14 per cent to 24 per cent, taking cue from Central Bank’s benchmark rate increases.
Mr Muthendi said microfinance institutions had partnered with many wholesale financiers that lend to MFIs in dollar or euros, with an agreement on how to hedge against forex risk and protect the micro lenders from interest rate volatility in the local market.
Common lenders to the MFIs include Stromme foundation, Oikocredit, and Proparco.
Partnerships with social investors who are mostly interested in changing the welfare of the communities and not financial returns have also seen borrowers with the microfinance institutions continue servicing their loans at unchanged rates.
The Association of Microfinance Institutions states that the lenders have six million customers and a loan book of Sh66 billion.
Faulu Kenya MD, John Mwara, said his firm, a deposit taking MFI, had not reviewed its lending rate.
“We also want to protect our customers from default. Their ability to repay loans has greatly reduced and their current minimal margins from their engagements cannot take extra cash commitment,” said Mr Mwara.
CBK’s interest rate increases have been aimed at stabilising the shilling and taming the inflation rate.
The shilling slumped to an all-time-low of 107 units to the dollar in October, while the inflation rate stood at 19.7 per cent as at the end of November.
Microfinance institutions mainly serve low income earners, who have borne the brunt of the recent surge in the cost of living.
From The Standard Media
When PAULINE NDIRANGU who is in her late 30s joined Faulu Kenya 15 years ago, the term microfinance was alien to many. Today, thanks to her efforts, Kenyans understand the term more and many have started successful small and medium enterprises. She spoke to NJOKI CHEGE
For many people, the term microfinance is relatively understood, although not fully. Fifteen years ago when I joined Faulu Kenya as a senior accountant, that term and its meaning were unknown. In fact, I had a hard time explaining to people around me what microfinance was all about.
Back then, when someone wrote that word on a document, he or she was prompted to do a spell check as the word was not accepted as an English word. Today, I’m glad that I can look back and see considerable progress in the microfinance industry.
One of my greatest achievements with Faulu Kenya was that I took the challenge to start Faulu Tanzania and it was a good experience. In 2005, I was appointed the CEO of Faulu Advisory Services. Having worked in the microfinance industry for more than a decade, I felt I was at the helm of my career and it was time for transition, and so I started my own company — B-More Consulting. I was pursuing the Advanced Management Programme (AMP) at Strathmore Business School, which offers this course together with IESE Business School of Barcelona, Spain. The programme equipped me with personal and professional abilities that have helped me improve my social, organisational and leadership skills in the world of business.
With B-More Consulting, I provide high quality management services to the micro, small and medium enterprise industry, for both local and international clients. Such services include giving extensive information on microfinance, licensing support, micro-insurance, fundraising and training. So far, most of our clients are happy with our services, and we are glad that we are exceeding their expectations.
Nevertheless, having my own business has come with its challenges. It’s been three years but I’m glad the pros have outweighed the cons. For instance, because as a businesswoman I work flexible hours, this has given me the time to follow other passions and interests I didn’t have time for before.
My normal day starts at 8am with a 30-minute brisk walk on the treadmill in the gym, followed with a long leisurely breakfast as I check my emails and the day’s appointments. Interestingly, no single day is the same as the next.
I also serve on the executive board of the Associations of Microfinance Professionals of Kenya (AMPK), which is a professional body that seeks to promote microfinance to higher levels of excellence and high integrity among the members and the wider microfinance sector. We are open to collaborations, partnerships and networking opportunities with key players in the industry.
It is an honour for me to be in a position where I can influence the direction of microfinance in this country and worldwide. Through my position, I hope to make microfinance a career one can be proud of.
I also work with Rafiki DTM (K) as a non-executive director. Rafiki is a nationwide deposit-taking microfinance organisation and a wholly owned subsidiary of Chase Bank. We are planning to launch its operations in the Kenyan market this year.
Once in a while, I give lectures on contemporary issues affecting small and medium enterprises (SMEs). Recently, for instance, I gave one such lecture to OWIT (Organisation of Women in International Trade), of which I am a member. OWIT and KAWBO (Kenya Association of Women Business Owners) have given me the opportunity to interact and network with businesswomen.
Earlier this year, I completed a 12-week self-renewal programme with the Alabastron Network Trust, which helps women renew their minds through increased self-awareness, self-esteem and self-confidence in order to live significantly. I appreciated the experience so much that I volunteered to be a guide in the programme for another 12 weeks.
I have also found another passion in real estate. I love the thrill of finding, letting or selling fine-looking property, be it commercial or residential. I also enjoy decorating and organising the rooms to make them eye-catching and attractive.
As I look into the future, I’m filled with hope and optimism for my business and family life. A new and exciting chapter is starting off as we speak, so I feel truly blessed and thank God for everything.
From NTV Kenya
Faulu Kenya is one of the few deposit-taking microfinance institutions in the country. As many of its peers convert into full-fledged banks, CEO John Mwara talks about the sources of its funding, the future of microfinance and how technology has shaped that sector.
By Peter Kiragu, Nairobi Star
The National Council of Churches of Kenya’s (NCCK) micro-finance arm will next Monday officially launch deposit taking activities after a go ahead by the Central Bank in December last year to carry out nationwide deposit-taking microfinance business.
SMEP Deposit Taking Microfinance Limited evolved from the Small Scale Business Enterprise Programme (SSBE), a project of the NCCK, which was started in 1975.
The project started as a relief arm of the church council providing the poor in a number of slum areas with food and later small business grants. The project was then modified, developed and evolved into a microcredit company that was registered as a company limited by guarantee in 1999.
The institution now boasts of 87,500 clients and an outstanding loan balance of approximately Sh1.1 billion. The transformation into a deposit-taking microfinance institution will enable SMEP DTM offer savings products to its clients in addition to the loan products.
SMEP DTM became the fourth deposit taking microfinance institution to be licensed after Faulu Kenya Deposit Taking Microfinance, Kenya Women Finance Trust Deposit Taking Microfinance and Uwezo DTM Limited, which were licensed in May 2009, March 2010 and November 2010, respectively.
The licensing of SMEP DTM progresses the financial inclusion initiatives of CBK. Deposit Taking Microfinance institutions will particularly address these entry barriers in areas that have not been well served by mainstream financial institutions.
By George Ngigi, Business Daily Africa
Restructuring costs and higher regulatory expenses have eaten into the earnings of newly licensed deposit-taking micro finance institutions, with Faulu Kenya sliding further into loss territory and Kenya Women Finance Trust (KWFT’s) profits dropping by more than half.
Faulu Kenya, which was licensed as a deposit-taking institutions in 2008, recorded a loss of Sh130 million, deepening the net loss of Sh5.3 million reported last year.
KWFT reported a 110 per cent drop in profits to Sh321 million from Sh676 million for 2009.
“We being profitable is good as most people expected us to slip into loss following the infrastructural and staff costs related to transforming,” said Mwangi Githaiga the managing director of KWFT.
He said costs incurred in transforming the business to a deposit-taking lender were estimated at over Sh500 million which were composed mainly of branch set up costs, core banking system upgrade to facilitate processing of reports as required by the regulator, stationery and increased staff costs.
The microfinanciers were restricted to lending only and could not take deposits from the public before the licensing by Central Bank of Kenya.
KWFT had to source for professionals in the banking sector to help them manage deposit-taking and further train their staff on the risk associated with cash handling.
The micro-lender was issued with a deposit taking license in April last year and by end of year had mobilised Sh6.1 billion in customer deposits.
The deposits mobilised were, however, not sufficient to stop its reliance on external funding, which stood at Sh10.2 billion and for which it paid out Sh811 million as interest.
Some of the external debt was disbursed in foreign currencies which led to foreign currency losses amounting to Sh3.7 million owing to the depreciation of the Shilling.
“Already we have 10 licensed branches collecting deposits and we hope to roll out more, with that we expect to cut our reliance on external funds,” said Mr Mwangi.
With its loan book growing to Sh11.6 billion from Sh10.1 billion the financier’s interest income from loans and advances rose by Sh1.4 billion to Sh3.5 billion.
Though the cost burden, transformation also opened the door for the institution to earn income from over the counter charges and transaction income releasing them from reliance on one revenue stream.
“What we have reported is dependent on one product, lending, but we usually give money to women who are charged transactional fees by other players. We now want to ensure we bring that commission home” said Mr Mwangi.
Though Faulu Kenya management was not available to comment on its performance a statement from the company said that Faulu undertook a consolidation exercise to improve the quality of the loan book which resulted with an additional impairment charge of Sh74 million mainly on account of agricultural sector loans whose recovery was hampered by the 2008 post election violence.
As a result the bank’s gross non-performing loans declined by 35 per cent to Sh289 million from Sh446 million and its provision for loan impairment rose to Sh78 million from Sh4 million.
The institutions loan book and deposits shrunk by Sh400 million and Sh200 million respectively.
Faulu Kenya opened 23 banking branches during the year which is expected to have affected their revenues with the cost of opening a branch estimated by market players at Sh20 million.
The transformation process has led to a decline in its profit as in 2007 it reported after tax profits of Sh77 million on a total revenue of Sh461 million, which declined to Sh11 million in 2008 on total income of Sh586 million, before turning to a loss of Sh5.3 million in 2009 after on revenues of Sh808 million.
Mr Mwangi of KWFT said that with the amendment of the micro-finance act making it possible for them to convert their marketing stations to deposit taking stations would increase their grassroots presence and ability to mobilize deposits.
Though its performance outdoing that of some banks the management is cautious of converting to a fully fledged bank.
Being under the micro-finance act KWFT cannot be able to earn from streams such as current accounts, foreign currency accounts and international money transfer services apart from being locked out of the clearing house.
“Though the micro-finance institutions are more labour intense the clientele that we serve can be easily locked out if we evolve into a bank. What we need is a strong regulatory framework that is conducive for micro-finance,” said Mr Mwangi.
The other licensed nationwide deposit taking micro-finance institutions, small and micro enterprise programme (SMEP) is a not-for-profit micro finance institution while Remu was licensed this year thus is not obliged to release its financials.
By George Ngigi, Business Daily Africa -
The Central Bank has licensed Remu as a deposit-taking microfinance institution, becoming Kenya’s first start-up micro-lender with a nationwide reach to acquire the regulator’s approval under new laws passed in 2009.
All the other three national micro- financiers licensed under the Micro Finance Act to take deposits from the public have transformed from non-deposit taking lenders, meaning they had an existing clientele, deposit base and loan book.
Remu on the other hand will start from a clean slate with its first branch in Nairobi that is yet to open doors.
Its deposit and loan products are awaiting approval from Central bank.
“We hope to open our doors in a month’s time while we await gazettement by CBK,” stated the institutions general manager Lydia Kibaara.
Remu, which was registered in August 2009 with an initial plan to open as a micro financier took advantage of the enactment of the Microfinance Act to seek a licence for deposit-taking from the start.
The management of the institution believes that starting under the CBK regulations will help them earn public confidence and hence create a strong deposit base quickly, with its main aim being to plant a saving culture among its clientele.
A statement by CBK issued last week said Remu microfinance will primarily focus on offering loan products to finance development and meet capital needs of small and medium enterprises.
The institution’s initial plan is to start with branches in Eastern and Coast provinces as it seeks to spread nationally, said the general manager.
Because it is starting off as a deposit taking institution, the micro lender will avoid transformational related costs necessitated by the CBK regulations that were a huge burden to Faulu, KWFT and SMEP— the other nationwide deposit taking microfinance institutions.
Some of the costs identified with the transformation process include change of core banking system to robust one able to produce CBK required reports and move data.
Faulu Kenya, which was the first to acquire a deposit taking licence in 2009 published its financial results last year which showed a decline from profit position of Sh11.6 million to a loss of Sh49 million due to transformational costs.