NCBA plans new M-Shwari company from banking unit

From left: M-Pesa Africa CEO Sitoyo Lopokoiyit, former Safaricom chairman Michael Joseph and NCBA boss John Gachora during a press briefing on September 28, 2022. PHOTO | DIANA NGILA | NMG

NCBA Group will spin out its financial technology (fintech) business which includes M-Shwari into a standalone company in the race to create more personalised and feature-rich digital banking services for its customers.

NCBA Group CEO John Gachora has said the bank is in the process of forming a separate fintech company to host its digital loan platforms in Kenya and others in five countries where the bank operates.

The subsidiary, which will operate under the parent group, will be led by a CEO and have a separate board.

This comes in a period when banks are increasingly turning to imaginative combinations of software, hardware and data to create and deliver both new and traditional financial products and services.

It’s part of a global trend that has seen financial giants like Goldman Sachs and JP Morgan Chase invest in fintech for asset and wealth management, card business as well as offer savings accounts and personal loans to retail customers.

The NCBA revelation comes weeks after the Central Bank of Kenya (CBK) started regulating digital lenders, a move that will give the banking regulator powers to rein in lenders who violate consumer privacy and overcharge consumers.

“What we are now discussing is how we package our business as a fintech so that it can get the right valuation. I understand from what I have seen in some write-ups that people don’t know the details of Fuliza and M-Shwari but we can package it in a way where we can report on all these details,” said Mr Gachora.

“The vision is to have a separate fintech where we put all these businesses together, get the right valuations, give the right disclosures and therefore get some more shareholder value.”

NCBA has reaped huge rewards from pioneering mobile phone-based lending in Kenya after teaming up with telecoms operator Safaricom in 2012 to launch the dominant service, M-Shwari.

It also launched a service in 2018 to speed up payments for goods or services delivered by suppliers through an online web-based platform.

Firms that contract small suppliers get instant access to cash equivalent to the orders, allowing them to pay their suppliers faster.

Late payments for goods and services is a common problem for small Kenyan businesses.

In 2019, NCBA in partnership with Safaricom and KCB Group launched an overdraft feature, Fuliza, whose performance has surpassed the firms’ and analysts’ expectations.

Borrowings on Fuliza via NCBA rose by 30.7 percent to Sh288 billion in the six months to June from Sh288 billion in the same period a year earlier.

M-Shwari disbursed Sh42 billion compared to Sh44.8 billion worth of loans that were disbursed over the same period in 2021, representing a six percent drop.

It has partnerships in the regions with other telecom operators, including M-Pawa in Tanzania with Vodacom, Mokash in Uganda and Momokash (Ivory Coast) with MTN.

Mr Gachora said partnerships will continue within the new subsidiary to promote the digital lending business.

The creation of a fintech subsidiary by NCBA comes in a period when Kenya has tightened regulation of fintechs.

Users of mobile phone-based micro-lenders, which include the Silicon Valley-backed Tala, surged to two million in 2019, from 200,000 in 2016, the central bank says.

Before last month, dozens of lenders were not covered by any of the existing laws. But the digital products of banks like NCBA and KCB were regulated.

The new law requires the lenders to seek approval of the central bank for the pricing of their loans and products, subjecting them to the same rules as commercial banks.

It also grants the banking regulator powers to revoke the permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers.

It aims to stop a trend where some lenders resort to “debt shaming” tactics to recover loans.

There have been reports of debt collection agents pursuing borrowers by informing their friends and family using contact information scraped from their phones or by threatening to tell their employers.

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