Companies

StanChart to offer mobile loans after CBK approval

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StanChart Kenya CEO Kariuki Ngari. PHOTO | DIANA NGILA

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Summary

  • Standard Chartered Bank Kenya is set to enter the mobile lending business in search of growth in the mass market where it has been absent.
  • The lender has received an approval from the Central Bank of Kenya (CBK) to venture into the digital microlending space, according to sources familiar with the matter.

Standard Chartered Bank Kenya #ticker:SCBK is set to enter the mobile lending business in search of growth in the mass market where it has been absent.

The lender has received an approval from the Central Bank of Kenya (CBK) to venture into the digital microlending space, according to sources familiar with the matter.

StanChart is expected to introduce the new financial services in weeks, aiming to grow its customer base beyond the current concentration among large firms and high-net-worth individuals.

The company’s historical focus on affluent customers has seen it miss out on increased uptake of banking services among millions of poor Kenyans, a significant number of whom have ascended to the middle class.

Indigenous banks led by Equity #ticker:EQTY, KCB #ticker:KCB and Co-op Bank #ticker:COOP have benefited the most from mass banking, generating billions of shillings from fees and interest on shorter-term loan cycles that last from one month to a year.

Mobile banking has become the cornerstone of serving the masses, enhancing convenience to customers while reducing the need for banks to expand their brick-and-mortar branches.

StanChart, which has been closing its physical outlets in a deeper push into digital banking, will now join the lucrative mobile loan business in search of new customers.

The bank’s customer base is small among the big banks, reflecting the limited number of big corporations and high-net-worth clients.

It had 240,000 deposits accounts and 50,000 loan accounts in the year ended December, according to Central Bank of Kenya data.

NCBA Group, riding on the pioneer mobile banking platform M-Shwari, had the largest customer base comprising 38.7 million deposit accounts and 7.3 million loan accounts.

Mobile lending has proved lucrative due to the ability to serve millions of customers and the fact that banks can charge higher interest rates on the short-term credit facilities compared to ordinary loans.

Most of the mobile loans mature in one month and attract interest rate of up to 7.5 percent, which the lenders describe variously as “facility fee” or “processing fee”.

Annualised, the fees run up to 90 percent compared to average interest rates of 12 percent on ordinary bank loans. The mobile loans are unsecured and banks manage the risk of default mainly through use of analytics and the fact that most customers seek to avoid negative listing with credit reference bureaus.

For StanChart, mobile lending will help grow and diversify its existing business. Affluent individuals comprise the most lucrative client group for the bank, bringing in Sh12 billion in operating income in the year ended December.

Multinational companies and government agencies were second with Sh7.2 billion, followed by local big and medium-sized enterprises which raked in Sh2.3 billion.

StanChart reported a 19 percent net profit increase to Sh2.3 billion in the first quarter ended March compared to Sh2 billion a year earlier, benefiting from lower costs.

The bank says it is cautiously optimistic of improved performance this year. Reopening of the economy and commencement of vaccinations against coronavirus are among the factors brightening the economic outlook.