KTDC bails out small investors in the hotel industry

Potential investors in the hotel business are often put off by the high initial costs. They need loads of money to put up dining rooms, lodges, kitchens, and even gyms and furnish them.

But this is not all, they too must hire qualified staff and proceed to buy food, prepare meals, and lure guests to their establishments.

Bruce Madete faced a similar predicament whenever he returned to his rural home in Gisambai, Western Kenya, every year with his family. The lush green fields, cool fresh breeze and gentle quietness gave him a deep feeling of relaxation.

In 2003, he named the dream cottages that he wanted to build on his 2.5 acres of land Sosa Cottages — the Luhya word means to rest or relax.

But the concept: a hotel of seven cottages with roofs that emulate the local African hut design but made from modern materials, was not easy to sell to financial institutions.

Mr Madete approached more than 10 mainstream banks and was turned away because “they couldn’t visualise the cash projection for such a project, and the hospitality industry was considered volatile”.

Reluctant to let go of his dream, he pooled family savings, sold a property in Nairobi, and mortgaged his home to venture into the business. Luckily, a few months after starting the self-financed project, Mr Madete was introduced to the Kenya Tourism Development Corporation (KTDC).

KTDC agreed to a site visit and within three months, Mr Madete had secured a 10-year loan that gave him 60 per cent of the value of the hotel at a nine per cent interest rate. In 2007, the first phase that includes seven cottages was completed. Despite the 2008 Post Election violence, there was overwhelming response from the market.

In 2010, Mr Madete secured a second KTDC loan which allowed him to increase the number of rooms to 28. He plans to build a conference facility and health club this year. But the dream doesn’t end there. Sosa Cottages is just one of KTDC’s success stories.

Others include a community project in Ijara where 15 eco-friendly rooms have been constructed alongside a conservancy for wild animals, including the endangered hirola; and the 30-room Hotel Levantes in Teso district, close to the Tororo Hills, as well as the Kakapel Rock Art Site, just five kilometres from Malaba, a town on the Kenya-Uganda border.

As an institution that understands and specialises in the hospitality industry, KTDC plays a key role in developing rural areas. “They are not desk lenders,” said Mr Madete.

“Their service is personal. They are open and honest about the repayment of their loans,” he said, adding that as stakeholders who have an interest in ensuring the success of the project “they make follow up visits three to four times a year.”

KTDC’s support of any project begins with appraisal of the business plan, continues to post development with assistance in setting up an organisational structure and operating systems.

“You can have a good site but bad running can bring down the hotel,” said Mr Abraham Muthogo, the head of credit at KTDC. KTDC believes that every part of the country has something to offer, and that “demand for tourism is much higher than we can handle.” The firm encourages Kenyans to invest in areas that are not typically popular.

“In 1969, when we funded the construction of the Hilton and the Intercontinental hotels, no one was interested in investing in Nairobi, but look at it now. The same applies to Lamu; Sunsail Hotel was a KTDC project and now supply on the island has outstripped demand.”

Western Kenya, where Sosa Cottages is located, is just one of the areas where KTDC is encouraging investors to put up hotels and lodges to enhance bed capacity.

And with the newly opened airport in Kisumu and the upgrading of roads in the area, demand for beds is on the rise. Other key areas that KTDC is interested in opening up include Garissa, Lokichoggio, Kogelo in Siaya, Kisumu, Migori, Kakamega, Kipini, Amagoro, Eldoret, Kitale, Nandi Hills, Embu, Isiolo, Ukunda, Mtwapa, Nanyuki, Athi River, Kajiado, Kisii, Homabay, Vihiga and Sori.

“And it doesn’t matter how small or how big your idea is,” Mr Muthogo said. “Various concepts fit various locations; it is based on the market you want to tap into.”

KTDC’s loan facilities offer up to Sh50 million, based on the security that an individual can offer, and the application process is as simple as submitting an application form with a business plan.

They offer a 5-year short term loan and a 10 year long term one at a nine per cent reducing interest rate, extremely competitive compared to lending rates offered by commercial banks.

Bolstered by the success of the Sosa venture, Mr Madete has encouraging words for Kenyans who have land in rural areas and are considering setting up a small hotel.

“The cities are oversaturated,” he said, adding that the potential out there is untapped. With the right institution backing one, an institution that is interested in one’s long-term success and not in turning in a quick profit, one is bound to succeed, he said.

However, Mr Madete cautioned that hotel business is long term.

“Not like buying maize today and selling it tomorrow. If you think like that, forget it. Instead look at the benefits as belonging to your children.”

This year, KTDC will launch a new corporate brand as it plans to work closely with the Kenya Tourism Board to raise the profile of its projects across the country and aggressively market them as attractive destinations.