Sumac DTM in market for a Sh500m capital injection

Newly licensed micro-lender Sumac DTM has started talks with three strategic investors for a mix of debt and equity injection into the firm.

The deposit-taking-microfinance (DTM) institution is gunning for Sh500 million from two local institutional investors and a Netherlands-based firm.
Sumac chairman Kibatha Njoroge said in an interview the capital injection will help to boost the micro-financier’s lending capacity.

“We want to roll out a branch network, increase marketing and raise our working capital,” said Mr Njoroge who, however, declined to reveal names of the prospective investors, citing confidentiality agreements. It has two branches in Nairobi and a customer base of about to 5,000.

It was issued with a deposit taking license by the Central Bank of Kenya (CBK) last year.

CBK data show that the country’s eight DTM institutions had Sh32.4 billion asset base in 2012, a 31 per cent increase, from Sh24.8 billion in 2011.

(READ: Microfinanciers’ customer deposits surge to Sh15.4bn)

The lender had a Sh150 million capital base by the end of 2012 but this is expected to increase to Sh500 million in three phases, Sh150 million by the end of this year, a similar amount next year and Sh200 million thereafter.

The new capital injection will have a bias towards debt, which is meant to help current shareholders maintain a level of management and ownership control.

Sumac, which began as an investment club in 2002, is owned by 15 shareholders, including board members Njoroge, an accountant, Duncan Mwaniki, the MD and retired banker, Rufus Kanyogo, a dental surgeon, Peter Kimani, a lawyer, Mbugua Muiruri, a financial and accounting consultant and S.M. Chege, a lawyer.

Sumac typically advances loans between Sh500,000 and Sh1.5 million with a tenure of between six months to a year to borrowers in trade, retail, food industries who require quick loans.

The lender’s main borrowers are traders who want turnaround times of within hours even in the absence of collateral, which is difficult to do for mainstream banks.

“There is a lot of demand for working capital but the main problem is on the supply side,” said Mr Njoroge.

Analysts say that the weak cash flows in addition to capital has created an opportunity for lenders with a bigger risk appetite than commercial banks.

“That segment is under-served owing to a lack of collateral, and requirement from the mainstream funders, such as commercial banks and consistency in cash flows, which they most times lack,” said John Kamunya, a consultant with Emex EA, a valuation company that focuses on SMEs.

Affordable

Francis Mwangi, head of research at Standard Investment Bank, said that branch expansion will allow Sumac DTM to get more deposits which are a cheaper source of funding than others like borrowing.

An affordable source of funding is the only way that such lenders can expand while managing costs.

“You can only grow if you can control your cost of lending,” said Mr Mwangi.