Century Microfinance Bank: Financing Small Enterprises and Farmers in Kenya

Interview with Robert Kamanja, CEO of Century Microfinance Bank

What is your assessment of the microfinance sector in Kenya? What are the latest trends?

The banking industry has had some challenges because of the recent rate capping which meant that the banks had a certain amount of interest that they could charge customers irrespective of the risk and a certain amount of interest that they could pay on deposits. That has been a major hindrance to the growth of the economy because a lot of banks were not in a position to lend to the micro sector where they consider the risk higher. They were not willing to venture into that space. In the market, we have people who are not able to access credit. It has caused a major disruption in terms of availability of capital to SMEs and microenterprises. Just a few weeks ago, Parliament repealed that law. This means that banks now have some leeway to charge interest rates according to the market. We are now moving towards a risk-based costing of loans. If we perceive a customer has a higher risk, then they are charged higher interest and those with a lower risk are charged less interest. It is a good space and a good time for banks to exercise their mandate.

Is the market competitive?

Our main product is loans. We give secured loans to microenterprises and SMEs. With the removal of the rate capping, it is now possible for us to go even deeper and offer loans to people without conventional securities like logbooks or motor vehicles or land.

The major challenge for microfinance is trust. We have had some banks that have gone down with people’s money. About two years ago, three banks went down at once. People lost their money and are still struggling to get it back. That caused a big shock in the industry. A lot of people want to trust the bigger, first tier banks as opposed to microfinance institutions. A lot of microfinance institutions are finding challenges raising the raw materials for their business which are deposits. We have to look for alternative ways to raise deposits. The Central Bank is really working to create confidence in the industry through deposit protection. They recently raised the deposit protection amount from 100,000 to 500,000. Those efforts are helping to shore up trust among our customers and among the citizenry. Going forward, trust will come slowly with time.

How do you stand out from the competition? What are your competitive advantages?

The founders of Century Microfinance wanted to focus on financing and supporting small enterprises and farmers. That is a space that we have not fully utilized but that is where we are heading. Our advantage is in empowering the farmer. Currently the farmer is facing a challenge. We were at a conference in Mombasa and we were asked the question of why the Kenyan farmer is not doing well. There are a lot of efforts being made to support the Kenyan farmer. We have money to buy food. The farmer is producing and we are eating, but the farmer is not really benefitting. There seems to be a very long value chain from the farmer to the consumer. That is where there is a lot of money changing hands. We want to see how, through technology, we can link the farmer to the consumer and make the farmer benefit more. Technology will shorten the value chain but that also requires a number of players and a lot of investment. For example, we are looking at guiding the farmer, the farmer communicating what is in the farm, when he will harvest, and how much he will harvest for logistical purposes so the produce can be put in a warehouse and stored. Then, we want to enroll the youth to use their social networks to market. People can download an app on their phone and use it to buy groceries directly and they are delivered to their doorstep. This is a huge enterprise. It will mean that nearly every grocery or foodstuff that is being consumed will be passing through us. That will be a huge leap in terms of supporting the farmer because we can almost double the price of his produce because we eliminate the middlemen. The consumer is also truer. Currently, in Kenya, we have concerns about food safety and where our food comes from. We have had some unscrupulous traders growing vegetables near sewage and the food picks up heavy metals. We have had very high incidents of cancer and respiratory problems. This is something that can offer a solution because we have traceability. You can actually know who the farmer growing your produce is. It is a very ambitious project to undertake.

What progress have you made in this project? What is the next step?

We have the app ready. We are not the developers. We have a player doing the app for us. We are sourcing for donors to come in and support us with funds. We are looking for those who are dealing with food safety, training, and empowerment. We have approached a few logistics companies. People in the rural areas can go to the app, purchase the goods, and they are delivered all the way to the rural areas. It is only 180 degrees because goods are coming from Nairobi to the village, but the trucks go back empty. Now, instead of the truck going back empty, we want to incorporate the farmer so his produce can come back and be consumed in the city. Then we will have a 360-degree operation. But we need warehouses. There are a number of people we are talking to in terms of empowerment, training the farmers, rolling out our marketing units. By next year, we want to have at least ten marketing units where the farmers are. Our role will be to finance the farmer in terms of improving his production, buying machinery and water pumps, improving mobility by buying motorbikes, or even buying domestic animals. We want the farmer to diversify, not just depend on one crop. If he has one cow, the cow can produce manure that can be used on the farm. We are coming in to bank the farmer, train the farmer to save, and educate him on borrowing and lending. On the consumer end, we want to involve unemployed youths who are out of university and may not have jobs but have a lot of networks. We want them to enroll as many households as possible in the app. Once they enroll someone, that person is in their network. Every time a customer makes a purchase, the youth that recruited them will get 5 to 10% of the sales. According to our research, a household in Nairobi spends about 500 Kenyan shillings or $5 per week on groceries. That comes out to about $20 per month in a normal household. So, if a youth is able to enroll 200 households and each is consuming $20 per month, we are in a position to empower this youth and create employment in a major way. We are using technology to empower the farmer, empower the youth, and create employment. It is a very exciting journey we are looking towards for 2020.

What other projects are you working on?

Our main product is loans. We give secured loans to microenterprises and SMEs. With the removal of the rate capping, it is now possible for us to go even deeper and offer loans to people without conventional securities like logbooks or motor vehicles or land. We will use chattels and domestic animals to be able to finance them. We are getting into mobile lending. This is a hybrid product we have developed. Mobile lending has reached the whole country. You download the app, apply for a loan, they check your risk profile, they do their analysis, and then start you with $20 and when you pay two or three times, they continue. You will find more loans like that on the consumer side. It is not serving the working capital for businesses. It starts small and there is a limit, sometimes only up to $400. Our product brings in the convenience of fintech where you get a paperless loan and you can pay and borrow again. It also introduces proper KYC. Currently, the space of mobile lending is having challenges because the repayment rate is about 20% bad book. This is because someone might be on the far corner of the country and only needs the app to apply for a loan. When they apply for a loan, they do not pay. Recovering a loan of $20 that is 300 to 400 km away is not risk feasible. Now, we come to your business, we appraise you, we look at your bank statements, get a guarantor, get next of kin, which is very important, and a Google pin location of your business. If I cannot reach you, I will call your wife. If I cannot get your wife, I will call the guarantor. If you fail to pay, even if the officer who appraised is not present, we have the Google location of the business and we can go there and demand payment. We see this product as being a game changer in terms of addressing the challenges and also the working capital needs. We are starting as low as $50 and we can go up to $1,000. We are in a position to finance working capital needs at the convenience of technology. They take the loan monthly, pay, and take again with interest. They can plan to pay slowly. In 2020, this will be a big space for us.

What is your international reach? Are you looking for investors?

53% ownership of Century Microfinance belongs to MESPT, Micro Enterprises Support Programme Trust. This is program is done through a partnership between the Kenyan and Danish government. We have a lot of linkage because DANIDA is an international aid organization aimed at supporting small and medium enterprises. As a major shareholder, it is quite supportive in terms of training needs, establishment of call centers, even sourcing for networks we may need. Our shareholders will decide if we need more investors but it is open. The role of MESPT is to get Century Microfinance to fulfill its mandate. If we can do that, it is definitely a welcome initiative. We will be looking at expansion and that will be something the shareholders will be positive on.

What are your plans for the medium term, two to three years’ time? What do you want to achieve for the company?

We want to be a company that recognizes talent as an income generator and supports it. We are already in talks with players in the social media industry. We have bloggers and vloggers who get paid but they do not have any banking experience. We also want to get into the food sector. We want Kenyans to have healthy food and empower the farmers. With the expansion of the middle class, there are various needs coming through. The middle class is looking at technology, health, and lifestyle as very important components of their lives. We see ourselves supporting not business but lifestyle. If someone wants to have animals like German Shepherds or horses, we want to get into that space and finance them. Right now, a lot of youths are getting into motorbike sports. They ride to work and on the weekends. Currently, no one is in that space financing motorbikes and we want to be there. Many young people are getting into cycling and bicycles. Some of these bikes are expensive and they may not be able to afford them. However, the cost of commuting to work and back in Nairobi is quite high and this is an alternative. We have talked to some players selling these bicycles and we are interested in financing this space. We also want to fund lifestyle aspects so people are more comfortable. For example, wellness and people that want to have gyms in their homes. We want to support that space so people are more healthy and they can have hobbies. In the next three years, we want to be the bank that is identified with lifestyle, food safety, empowerment of the farmer, supporting talent, and supporting youth employment.

FAIR USE POLICY
This material (including media content) may not be published, broadcasted, rewritten, or redistributed. However, linking directly to the page (including the source, i.e. Marcopolis.net) is permitted and encouraged.