Car &General #ticker:C&G (C&G) has invested an additional Sh38.6 million in microlender Watu Credit Limited, raising its stake in the company to 29 percent in the year ended September.
The Nairobi Securities Exchange-listed firm previously held a 26.5 percent interest in the lender.
The investment in Watu Credit has helped C&G to boost its sale of motorcycles and tuk-tuks. The microlender funds acquisition of the two and three-wheeled autos including brands sold by C&G such as TVS and Piaggio.
“In the current year, the group acquired an additional 2,500 shares in Watu Credit Limited leading to the total ownership by the group in Watu Credit Limited to 29 percent,” C&G says in its latest annual report.
The company acquired the 26 percent stake in Watu Credit in 2017 for Sh26.8 million. The value of its stake in the microlender has grown to Sh418.8 million in the year ended September on the back of the associate’s increased profitability.
C&G’s share of Watu Credit’s profit in the review period stood at Sh247.4 million, a growth of 63.2 percent from Sh151.5 million a year earlier.
The microfinance firm has a net profit margin of nearly 25 percent. This indicates the lucrative earnings enjoyed by alternative lenders unconstrained by stricter regulations imposed on mainstream banks such as interest rates to charge on loans.
The alternative lenders, including those running digital platforms, can charge annual interest rates of more than 30 percent compared to the current average upper limit of 13 percent on bank loans.
Banks have to obtain an approval from the Central Bank of Kenya (CBK) before raising their lending rates, introducing an administrative hurdle following the scrapping of interest rate controls in November 2019.