Former banker carving out niche in digital lending

Rakesh Kashyap is a veteran banker, having been in the industry for over 42 years—25 years in India and more than 17 years in Kenya.

At the end of December 2017, he opted to quit his CEO role at M Oriental Bank to venture into digital lending business.

Mr Kashyap, now 66, founded Little Pesa— a non-deposit taking micro-finance firm that provides short term unsecured loans of up to Sh100,000.

“I had had enough of banking in those 42 years — dealing with borrowers all the time and sometimes fighting over loan collateral. I found another love in digital microfinance,” says Mr Kashyap.

Aware that the digital micro lending space already has many other established players such as Tala, Branch, Okash and Zenka, Mr Kashyap had to do something different. He went for a niche market.

His focus is the salaried people and customers are only required to give their national identity card and pay slips to get the e-loans via Little Pesa app.

Little Pesa started operations in 2019 and last year hit a turnover of Sh100 million. Its customers are employees spread out in about 130 companies.

Mr Kashyap says the performance this January points to a possibility of hitting Sh500 million turnover by end of the year since the average loan size has hit Sh25,000 from about Sh10,000 in 2019.

“We are lending almost Sh16 million a month. We want to grow slowly and steadily and so we are careful when onboarding new customers,” says Mr Kashyap.

“This is a success story and we definitely want to take it to another level.”

And unlike the models used by other digital lenders in approving loan limits, Little Pesa does not offer loans beyond 50 percent of ones’ net pay.

The firm has set a minimum loan at Sh5,000 and does not lend to salaried people whose net pay is below Sh30,000.

Mr Kashyap says the capping of loans on ones’ net salary has helped the firm avoid sinking people into deeper debt and keep default rates at below four percent.

“I found salaried people to be very conscious of their image. We don’t want to give them money that they will be unable to pay or sink them into debt distress,” he says.

Little Pesa charges four percent interest on seven-day loans while those for 15 days and 30 days attract interest rate of six percent and eight percent respectively.

As an incentive, every seventh loan is issued at zero interest to customers who have borrowed and repaid on time their previous six loans.

Despite the layoffs and pay cuts that have come as a result of Covid-19, Mr Kashyap says that he did not see a spike in default.

“I attribute this to the fact that we don’t loan out more than half of someone’s net pay. That makes it easier for them to repay,” he says.

Customers who do not repay their loan on time are given up to 30 days to do so but the interest rate goes up by two percentage points.

Little Pesa is now gearing up for a new product that will allow salaried people to borrow up to 200 percent of their net pay. This will be repayable in six months, at a monthly interest rate of five percent.

Digital lenders were last year delinked from Credit Reference Bureaus following public outcry over widespread misuse of the credit information sharing (CIS) mechanism.

However, Mr Kashyap says this has not hurt Little Pesa’s prospects since it already had close relationship with its clients. “The move has meant that we become more careful on choosing who to lend to. Customer appraisal requires more time since it is usually the genesis of strained relationships later on,” says Mr Kashyap.

He favours a mix of self-regulation as well as regulation by the Central Bank of Kenya if digital lending can grow without hurting consumers.