Mainstream lenders remain customers’ first option for savings

Hundreds of Kenyans prefer to save their money in banks as opposed to with mobile loan companies, a new report has shown, lowering the growth prospects of non-banked institutions in the country.

Findings by Infortrak Research and Consulting contained in The Changing Face of Banking report revealed that four in every five banked Kenyans would prefer to save their money with a bank mainly to due to security as opposed to a non-bank institution.

The survey also showed that in terms, of borrowing, about three-quarters (76 per cent) would prefer getting loans from a bank, despite the cheap credit always danged by mobile loan companies.

“Compared to private lenders, banks can issue a bigger sum of money. For instance, while the maximum amount one can borrow from Tala is Sh50,000 despite one’s credit worthiness, a bank can offer millions to the same borrower, especially if their credit rating is good,” says the report.

Despite the above trend, the report which was conducted between May 12 June 7, 2019 shows that a sizable proportion of banked Kenyans prefer getting banking services from non-banks thus threatening lenders’ key revenue generators.

This trend does however come with lots more opportunities than threats as a proportion of banked Kenyans prefer getting insurance (47 percent), forex (50 percent), investment/wealth management (63 percent) and money transfer (66 percent) from a banking institution, an area non-bank financial institution have played well.

Consequently, since banks are highly regarded as a one-stop shop for various financial products and services, including those that traditionally are not part of their core business is an indicator that there exists an opportunity.

“I am not sure whether my bank sells insurance policies but if they were offering it, I would prefer buying from it rather than buying from an insurance company. I would trust my bank more than insurance companies that are notorious for selling fake covers” said one of the respondent who was sampled in the survey.

Borrowers, most of whom are unable to access loans from mainstream banks, are normally attracted to the digital lenders who demand relatively less documentation and are quick to disburse the cash.

The non-banked lenders charge borrowers annualised interest of between 18 per cent and 200 percent.

The lenders have tapped into a market that has become more lucrative than mainstream banking where lending rates are capped by law at 13 percent. Their entry was in response to a rise in demand for quick loans and the freeze in commercial bank lending to individuals and small business that followed the 2016 capping of interest rates.

The list of seasoned players in this market includes Tala, Izwe, Branch, and Letshengo.

The market is also served by new entrants such as Nairobi Securities Exchange-listed firm Car & General. The micro lenders mostly offer borrowers short-term loans, lasting days to one month, according to a survey by research firm Financial Sector Deepening (FSD).