Serial entrepreneur finds success in microlending

When Equity Bank acquired a Uganda-based microlender in 2008, it was a dream come true for a Kenyan who had left the country in search of investment opportunities.

But it wasn't the end of his journey as an entrepreneur in microfinance.

James Mugambi was one of the shareholders of Uganda Microfinance Ltd that Equity Bank bought for Sh1.8 billion through a share swap and converted it to Equity Bank Uganda.

Mr Mugambi and his business partner, Tim Carson, the founders of Micro Kenya, which rebranded to Micro Africa and later bought Uganda Microfinance, had left Nairobi in 2000 to start a microlender offering loans to private sector employees through a check-off system.

“Upon setting shop in Uganda, we realised that there were investment opportunities and diversified into business lending,” said Mr Mugambi.

Regional presence

The 46-year-old accountant had started Micro-Kenya as a part-time job while working in Uganda before resigning to concentrate on the growing business.

The two partners later rebranded it Micro Africa, to reflect its regional presence after expanding to Rwanda and Tanzania in 2004.

“We had a five-year investment plan. We identified our weaknesses and learnt from other successful financial institutions that sold the brand first rather than personality,” he says of how he managed to steer the business into the success zone.

In Rwanda, the firm operated under the name Rwanda Micro-finance offering loans to private sector employees and entrepreneurs, riding on the growing appetite for cash as Rwandese rebuilt their lives after the 1994 genocide.

Its regional presence attracted humanitarian aid agencies in search of partnerships to improve service delivery and reach more poor households.

In 2006, Micro-Africa took over a micro-finance programme in South Sudan from American Refugee Committee and named it Finance South Sudan (FSS). The firm offered loans to groups and individuals to reduce poverty levels in the region.

In 2006, Micro-Africa moved into Tanzania, acquiring a 25 per cent stake in micro-lender Tujijenge Tanzania.

Seven years later, Mr Mugambi and Mr Carson sold their entire stake in Micro Africa Group that included Micro Kenya, Micro Uganda, Rwanda Micro Finance, Tujijenge Tanzania and Finance South Sudan to Letshego Holding Ltd, a listed company in Botswana in a multi-billion shilling deal.

The serial entrepreneurs took on a new business challenge in 2014 and established Premier Credit Limited — a micro-finance company that targets small and medium-sized enterprises.

It was a huge investment that needed a lot of capital forcing them to invite deep-pocketed institutions like Platcorp Holdings (a company associated with investment firm Centum) for Sh500 million working capital to bankroll their plan. 

Although their first business, Micro Kenya took seven years before posting profit due to stiff competition from banks, Premier Credit turned into a success by the end of its first year.

A year on, it has nine branches with a portfolio of Sh680 million and 120 staff members.

“Even in failures there are successes. Success in the sense that you learn from mistakes and avoid them next time you are into something similar,” said Mr Mugambi. 

Premier Credit has branches in Nairobi, Nakuru and Eldoret. The micro-finance institution mainly offers loans to individuals or groups and for home improvement.

It currently boasts of 8,000 customers compared to 6,000 last year. Mr Mugambi says Premier Credit expects to hit a loan portfolio of Sh1.5 billion this year, and to grow to 15 branches.

The company attributes its rapid growth to relaxed lending rules compared to banks and other micro finances.

“We noticed that collateral remains a big issue that dampen the hopes of many potential borrowers and we worked on systematic measures that put more emphasis on the borrower’s background, their character and credit experience, including the nature of the business they are in or intend to do,” said Mr Mugambi.

“We also noticed that medium and lower segment of market clients always pay their loans,” he added.

Premier Credit has partnered with Strathmore University to run a programme that mentors entrepreneurs and trains them on financial literacy.

Biggest challenge

Mr Mugambi cites the high cost of doing business as one of the biggest challenges facing many entrepreneurs in Kenya besides stiff competition from other players.

He says he keeps abreast with cutting edge business ideas by regularly reading the Harvard Business Review.

Mr Mugambi’s list of role models includes James Mwangi, the chief executive officer of Equity Group Holdings (formerly Equity Bank).

“Here is a man who turned a building society into one of the biggest banks in the region, attracting global recognition. He has taught me the wisdom of believing in your brand first and selling the brand rather than the personality behind it,” he said.

On money and success he says: “Money is a reward for a passion that has been well executed.”