Technology

Co-op Bank taps growing appetite for microcredit

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A Co-op Bank branch in Nairobi. The lender’s M-Co-op Cash offers loans besides account -opening, utility payments, funds transfer, buying airtime and withdrawal of cash from the comfort of a cellphone. PHOTO | W. OERI

Co-operative Bank’s move to offer small loans through mobile phones is set to change the landscape of Kenya’s microcredit industry and compete with Safaricom’s M-Shwari.

The Nairobi bourse listed lender last week unveiled M-Co-op Cash, a mobile-based banking platform offering loans and comes with added features such as account opening, utility payments, funds transfer, buying airtime and withdrawal of cash from the comfort of a cellphone.

Co-op Bank strategically chose to anchor M-Co-op Cash as mobile-based credit facility, reversing a trend where banks have primarily promoted the convenience of m-banking rather than offering loans.

Mobile banking apps such as KCB’s M-Benki, NIC NOW, Family Bank’s Pesa Pap and Barclays’ Hello Money have all been marketed as platforms to offer customers access to their accounts any time, and anywhere.

KCB Bank said its M-Benki platform has moved Sh66.8 billion in the last seven months mostly transferring cash between M-Pesa and KCB accounts, paying utility bills and payments such as court fines and school fees.

M-Co-op Cash is an Android app available on smartphones and can also be accessed via short code on feature phones. It is available across all mobile money platforms including M-Pesa, Airtel Money, yuCash and Tangaza Pesa.

The lender has developed a range of M-Co-op Cash loan products accessible via mobile phones, all attracting a one-off processing fee and repayable within 30 days.

Co-op’s mobile banking platform charges a one-off seven per cent processing fee for secured personal loans of between Sh100 and Sh200,000 repayable within a month.

M-Co-op Cash is seen as a head-on assault on M-Shwari, a banking product from Safaricom and Commercial Bank of Africa (CBA) which allows M-Pesa customers to save and borrow small loans through the phone.

Loans taken through M-Shwari are payable within 30 days and attract a 7.5 per cent facilitation fee.

Equity Bank, which partnered with Airtel to acquire a Mobile Virtual Network Operator (MVNO) licence in April, plans to offer mobile based loans to its customers.

Chief executive James Mwangi said the bank will charge an interest rate of 1.5 per cent per month for loans starting at Sh500 with the maximum being pegged on customers’ credit score and borrowing history.

The increased interest in Kenya’s microcredit industry is driven by the fact that small and micro-enterprises have historically been excluded from the loans market due to banks’ stringent requirements for collateral.

Analysts argue that small enterprises find it difficult to grow due to lack of access to debt for purposes of working capital and cash flow.

There have been case studies of microenterprises which borrow in the morning, buy supplies from producers, retail for a profit and pay back the loan within a day.

This is the ideal market for cellphone-based credit platforms such as M-Co-op Cash, M-Shwari and Equity Bank’s yet-to-be launched platform.

“Convenience is driving microcredit. For the borrowers, such credit is a source of liquidity and ensures businesses are running throughout, which is good for the economy,” said XN Iraki, the MBA co-ordinator at the University of Nairobi’s School of Business.

“This mobile-based microcredit model dovetails into our kadogo economy and will work.”

A study on the microfinance sector in Kenya shows that most small borrowers are entrepreneurs in search of business loans followed by individuals in need of emergency cash loans.

“Business loans represent the great majority of the portfolio, followed by consumption loans, emergency loans and agriculture loans,” says the 2013 Annual Report on the Microfinance Sector in Kenya.

The report authored by the Association of Microfinance Institutions Kenya (AMFI) reckons that the deep networks enjoyed by savings and credit co-operative societies (Saccos) poses a competition threat to existing microcredit players such as banks, telcos, microfinance institutions (MFIs), wholesalers and retailers.

“The saccos are at the centre of the co-operative movement in Kenya, playing a key role with deepened penetration especially in rural areas and they pose relevant competition in the microfinance industry,” said Benjamin Nkungi, chief executive of AMFI in the annual report.

Safaricom, Co-op Bank and Equity have huge customer bases which they can easily exploit to drive uptake of their microloans.

This, combined with mobile banking technology has the potential of deepening the microcredit sector. M-Shwari rides on Safaricom’s 19.3 million M-Pesa subscribers to mobilise savings and issue loans through the mobile money transfer platform.

Co-op Bank said it will ride on its customer base of 4.6 million accounts and the network of 550 savings and credit co-operative societies (Saccos) affiliated to the lender to push uptake of the mobile banking facility.

Equity Bank plans to issue special SIM cards to the lender’s 7.8 million account holder in Kenya and is already testing voice, data and mobile money offerings using its 7,000-strong workforce.

It is believed that the success of M-Shwari has whetted the appetite for Co-op and Equity Bank to venture into the microcredit business.

M-Shwari said it issued an average of Sh1.2 billion worth of loans per month in the year to March 2014 compared to Sh300 million a month the previous year.

This translates to Sh90 million monthly income or Sh1.08 billion per year for Safaricom and CBA in the form of commissions levied on loans.