Fountain Enterprise Programme (FEP) Group has closed down nearly half of its micro-lender subsidiary Fountain Credit’s branches and is only lending to repeat customers, saying it is shifting strategy to issue loans via mobile phones.
Its loss-making Fountain Credit has shut five branches out of 13 to remain with only eight outlets. The unit is currently piloting a loan app due to be launched by June.
The move will, however, lead to job losses, adding to the growing number of redundancies in the financial sector. The FEP did not disclose the number of employees to be affected by the move.
The firm says nine out of every 10 borrowers take loans worth less than Sh100,000, hence the loss-making lender reckons that it is more efficient to disburse loans via mobile platforms.
FEP chief executive Maurice Korir said the upcoming mobile lending app targets small and mid-sized entrepreneurs in need of working capital, who have been locked out by banks due to their perceived risk in the era of interest rate caps.
“The digital platform will allow us to grow income, rates will be higher, and cut costs at the same time. We see a greater bottom line even with same loan book size,” Mr Korir told the Business Daily.
“It is probably easier to embrace the larger customers who are moving to us from the banks. But our clients are the small borrowers. We are now only lending to repeat clients with good repayment history.”
Fountain Credit was established in 2010 as a non-deposit taking micro lender and currently has a clientele of 6,000 borrowers. Mr Korir said lending rates are on a flat and range from one to 1.5 per cent per month.
Fountain Credit is in a head-to-head fight for market share with players such as Centum-backed Platinum Credit, Old Mutual-backed Real People, Ngao Credit, Samchi Credit, Meridian Acceptances, and Musoni, backed by German lender KfW.
The wholly-owned non-bank institution had a loan book of Sh184.2 million in the year ended December 2015, which it now projects to grow to Sh280 million in the period to December 2016 — according to unaudited results.
Fountain Credit has been on a loss-making streak making a loss of Sh25.8 million in December 2015, following on from another loss of Sh61.01 million a year earlier. It also made a loss of Sh2.2 million in 2013.
Revenue from interest on loans and advances as well as other income grew nearly a third to hit Sh56.8 million in 2015 compared to Sh44.2 million in 2014.
Fountain Credit early this year hired a third debt collector to hunt down loan defaulters. The lender’s volume of toxic loans surged in 2013 and 2014, forcing the micro-financier to increase provisions for bad debts.
“Measures to reduce NPLs include ensuring that all loans are now against tangible security such as titled land and not share certificates. We’re utilising credit reference bureau prior to lending,” Mr Korir said.
Provisions for bad loans peaked to Sh31.9 million in 2014 and declined to Sh27.9 million in 2015, FEP said.