Banks slash loan limits in race for the mass market
Banking hall. Family Bank has been offering farmers as little as Sh700 in loans at an interest rate of 16 per cent. Photo/FILE
Banks have slashed the minimum loan to as low as Sh700, in what industry players say is a sign of an intensifying battle for the lucrative mass market currently dominated by Shylocks and microfinance institutions.
Co-operative Bank and Kenya Commercial Bank have lowered their minimum loans to Sh5,000 from Sh30,000 and Sh10,000 respectively, joining Family Bank, Equity Bank and National Bank among the financiers that offer micro loans to their customers.
“It is part of our micro lending programme started in 2010,” said KCB chief executive Martin Oduor-Otieno. “We want to cater for the whole spectrum of customers that we have,” he said.
Unlike corporate customers and rich individuals who can negotiate for interest rate cuts on their loans, low income earners do not have much bargaining power and are charged as high as 18 per cent interest, making them a lucrative market for lenders.
The low amounts are also targeted at small business owners like those in the jua kali sector, effectively getting into the domain of micro finance institutions such as Kenya Women’s Finance Trust (KWFT) and Faulu Kenya.
“For us, these amounts then graduate and catch up with the larger loans over time,” said Mr Oduor-Otieno.
He said the smaller denominated loans make up an “insignificant” amount of the bank’s total loan portfolio which stood at Sh128 billion as at September 30.
He said 50 per cent of KCB’s loan portfolio is held by corporate customers while the rest is shared by the retail sector, which includes personal loans.
Family Bank, whose total loan portfolio stood at Sh9.4 billion as at September 30, has been offering its Majani Plus micro loan through which farmers borrow as little as Sh700 at an interest rate of 16 per cent.
The loan is used to finance farm inputs, equipment, and livestock feeds and is available to customers who receive regular tea income.
Equity Bank, whose total loan portfolio stood at Sh66.8 billion, lends as low as Sh5,000 at an interest rate of 15 per cent.
While National Bank, whose total loan portfolio stood at Sh17 billion, lends a minimum of Sh1,000 to retail clients at an interest rate of 15 per cent.
Small amounts
“It depends on the customer, we have been lending as low as Sh1,000 through overdrafts,” said National Bank managing director Reuben Marambii.
“Banks are realising that there are customers who go to Shylocks and microfinance institutions because they do not know that larger banks can also lend these small amounts,” he said.
Shylocks are known to lend money at punitively interest rates, while microfinance institutions generally lend at higher interest than banks.
“We want to be of use to customers so that they do not have to go to Shylocks and micro financiers,” added Mr Marambii.
Intense competition for clients has also led to banks opening up branches and installing automated teller machines in lower income areas as they seek to tap into the unbanked population.
The lower sum, however, come with additional costs.
Customer requests
As a result, some banks such as Standard Chartered have chosen to maintain a Sh100,000 minimum lending amount due to the costs associated with lower amounts.
“Lower lending amounts are mainly due to customer requests, but we also access cost effectiveness of booking the facility, for example processing costs versus revenue to be earned,” said Standard Chartered Bank chief risk officer George Akello.
“Average lending rates for retail would be about 15 per cent but could be much lower, in single digits, for the good corporate risk grades,” he added.
