KWFT testing loan payments via cell phone

Kenya Women Finance Trust (KWFT) is undertaking a pilot test where its clients can make their loan repayments using Safaricom’s mobile transfer service, M-Pesa.

The move is aimed at making it more convenient for KWFT’s clients to repay their loan and help the micro-finance institution (MFI) increase its presence in the rural area at a lower cost compared to setting up branches.

KWFT’s entry into mobile banking comes at a time when branchless banking is waiting to take off should the Banking Act be successfully amended to allow banks to partner with agencies with a wide distribution networks.

The convergence of financial services and information technology should spur the uptake of financial services in unbanked rural areas and the best prepared agency, mostly MFIs and Saccos, in IT and branch network, will rule the roost in the form of partnerships with banks.

This has seen KWFT turn to mobile phone money transfer services in addition to upgrading its IT systems.

“Most of our clients travel a long distance to deposit their loan repayment. This will make it easier for them to make their repayments through the mobile phone,” said Mr Mwangi Githaiga, managing director KWFT.

The pilot test has 2,000 clients already on board. Clients remit their loan repayment through Safaricom’s M-Pesa, to their branch’s mobile telephone number.

The rapid penetration of the mobile phone has fuelled the emergence of mobile money transfer services offered by Safaricom and Zain. This is expected to be a boon for MFIs business as they expand.

If the pilot project succeeds, Mr. Githaiga says, they will be seeking approval from the Central Bank of Kenya to roll out the service to its 167 field offices countrywide to reach its 238,000 clients.

MFI’s have been at the forefront in availing financial services deep in the rural area as commercial banks stay clear of the market for fear of high defaults and lack of understanding of a market which requires close follow ups.

However, unlike banks, MFI’s are not deposit takers, thus limiting their capacity to use interest rates to cushion themselves against adverse market movements.

Since banks are both deposit takers and lenders, they can choose to raise the interest rates on lending while lowering interest on deposits.

On their part, MFI’s charge a higher interest rate to cover costs from borrowing from banks, other financial institutions and social investors.

The MFIs lending is followed up closely, through field officers, to ensure clients pay promptly.

KWFT recorded a 140 per cent increase in profits before tax to Sh548 million for the year ended December 2008.