The credit only microfinance aims to change the lives of people left out by the mainstream banks by empowering them with credit facilities
In Kenya, the microfinance sector has come of age. The industry has grown exponentially over the years with some microfinance institutions evolving into fully fledged banks. Demand for microfinance products remains strong especially among small and medium enterprises (SMEs) as well as majority of people at the base of the pyramid.
While the country has 43 banks and a range of microfinance institutions that are expected to serve over 40 million people, majority remain locked out of financial access, a gap that calls for a depth of financial services to address. “There are many MSMEs and individuals in the country that are not able to access capital, especially after the introduction of interest rate capping by the Central Bank, says Joshua Ogutu, General Manager at Pioneer Credit Limited (PCL). With regard to that, Ogutu feels there is a great opportunity to lend, the reason why PCL was founded.
He further notes that for MFIs to address the issue of financial access, they might need to merge, as in the case with the banks, to have the muscle to contribute more positively.
Headquartered in Nairobi, PCL is a credit only microfinance institution. It was founded in 2018 with a focus of providing financial support to individuals and businesses on flexible terms. The company’s vision is to offer a variety of financial services to different sectors of the economy.
Nowadays, consumers have become more informed as far as financial products are concerned. Most of them are shopping around for the cheapest possible products, but which meets their financial needs.
In this regard, PCL has embraced product innovation, focusing on what satisfies their customers’ needs. The microfinance institution mainly offers loans to entrepreneurs who either want to set up new businesses or expand existing ones. It also finances salaried staff.
One of the major products offered is bodaboda loans. “We did a quick desktop survey and realized that, the National Transport and Safety Authority (NTSA) registers at least 15,000 bodabodas every month,” observes Ogutu. Most of the riders however don’t own the bikes. To that end, PCL has partnered with dealers in Nairobi, Eldoret, Kisumu and Naivasha to empower riders to own motorbikes. The company finances up to 80 percent of the value and customers are required to pay between Sh 400 to Sh 500 every day.
To mitigate risks, PCL has partnered with an insurance company to take up comprehensive insurance cover for the bikes before they are released to the customers. They also install a tracking device that shows where the bikes are at all times.
Another product offered is check off loans where a loan is given against your salary and deductions done directly. The product targets salaried individuals, and in particular the civil servants. Ogutu observes that it is one of the safest portfolios and it has picked up very well. The loan has a repayment period of up to 60 months at very competitive rates.
Moreover, the MFI offers Pioneer CASH, a mobile based loan that is accessed using the USSD code *454#. According to the general manager, access to mobile lending is going up by day, but at the same time, default rate is also rising to as high as 30 percent. To mitigate that risk, Pioneer CASH is not open to everyone but is only available to civil servants or entities where we have existing MOUs with the employer. The loan has a repayment period of up to 3 months, and customers can repay via Mpesa or allow their employers to deduct.
PCL also offers loans against logbooks. The product is designed to enable clients derive maximum value from their motor vehicles. The logbook acts as the collateral. “The loan is disbursed within 24 hours,” observes Ogutu. The MFI advances up to 3 million based on the clients’ ability to repay.
Recently, the company signed a Memorandum of Understanding (MOU) with Little Cab that allows taxi drivers to apply for a smartphone loan. Dubbed Pata Simu Lipa Mdogo Mdogo, the service will enable drivers’ access better quality mobile phones that will enable them to better carry out their businesses. The drivers are required to pay for their phones via a daily or weekly charge for a period of three months. This, according to Ogutu, is a revolutionary concept that will enable drivers to improve on their service delivery.
Other products in the pipeline include invoice discounting, which is set to be rolled out in early 2020.
Why Pioneer Credit?
What differentiates PCL from other financial institutions is that it offers innovative products that are aimed at allowing its customers to access affordable credit. It also believes in excellent customer service and quick turnaround time in the processing of its loans through the use of digital platforms. The MFI is founded on a social mission of uplifting people, as opposed to merely making huge profits for its shareholders. “We are more of a social enterprise with a small profit margin,” says Ogutu. It has also partnered with various stakeholders and launched innovative products to improve the lives of its customers.
To continue with its noble course, PCL hopes to transform into a deposit taking microfinance in the next three to four years.
It is worth noting that many people remain locked out of accessing financial services due to lack of awareness. In the financial sector, only a few Kenyans patronize their products. To this end, the MFI endeavors to create awareness to ensure increased uptake of its products.
Commenting on interest rate capping, Ogutu says the move is good for the country, but it has restricted financial access to some SMEs and individuals who are viewed as too risky. “While the intention of capping was to offer affordable credit to consumers, it has however locked out many as most banks prefer lending to the government and other institutions.”
Despite this, the financial services industry has a lot of potential. It has had major disruptions in the last few years such as mobile phone-based lending that has helped grow access to credit.