Musoni: An Overview of the Microfinance Sector in Kenya by Stanley Munyao

Stanley Munyao, CEO of Musoni, shares his assessment of the microfinance sector in Kenya and explains what are the latest trends, as well as how Musoni differs from the rest of the players in this market.

“The microfinance sector in this country is currently going through some huge changes and evolution. This comes from emerging technological solutions that are coming into the market, primarily disruption through fintechs, digital lenders, and even traditional institutions that are adopting technology as a way of reaching customers. The financial space at large has three main players. There are our peer microfinance institutions that are small in scale and targeting smaller scale entrepreneurs and farmers using traditional, crude methods. There is then another category of fintechs coming into the space doing shorter nano-loans of smaller values for consumption purposes. But they offer costly credit to the bottom of the pyramid. Then, there are commercial banks that have been in the market for a long time, close to 100 years. For a very long period of time, they have focused on just the cream of the society. But, because of the changing environment, technology, legislation, and especially interest rate capping, they have been forced to rethink their business model and deploy technology in a manner that allows them to reach the bottom of the pyramid with small ticket loans that are cost effective. They have avoided small ticket loans in the past because they are costly to deliver and deemed risky because the ability to pay cannot be quantified so they would rather not touch the segment. However, technology has made it possible to make those barriers to extending credit to the bottom of the pyramid a thing of the past. It is now easier and cheaper to extend loans of $200, $10, or any amount through mobile telephony. Credit scoring through use of sophisticated algorithms now makes it easier to make credit decisions without necessarily involving human interaction, viewing loan applications, and processes. So, it becomes cheaper and faster. But then, the interest capping occurred and it reduced the ability for commercial banks to make as much as they would have wanted in terms of interest income from loans. If you package the small ticket loans as commission-based credit facilities, you can circumvent that kind of legislation. We have seen that nearly every other commercial bank has come down to that target clientele. Therefore, the microfinance landscape in the country has been completely redefined over the last three to five years. Kenya has a population of 55 million people, but 80% are now what is called financially included, simply because they are able to access financial services through mobile telephony. This is a major milestone. But the biggest question is what financial products and services are being delivered? Are they products that actually suit the needs of those customers? Are they products that are able to support business growth and development at a small-scale level? Are they working capital loans or consumption loans that therefore contribute to the well-being and growth of the economy? In most cases, the answer is no. That is where Musoni comes in. We are not a fintech, nor are we a traditional lender. We are a financial institution that leverages technology in order to reach the customers we need to. Those customers are then able to access sensible loans and sensible financial services from us. That is what the population at the base of the pyramid is looking for. They are not just looking for easy credit, expensive credit, short term credit, and nano-loans. They are looking for financial solutions that will help their business prosper and that is what we offer as Musoni. We come in with financial solutions that are suitable and tailor made to these customers in terms of loan profiles, loan sizes that are commensurate with their business needs, loan tenures that are aligned with the cash flows of the business, and pricing that is sensitive to the needs of the client. It is not exploitative, there are no hidden fees, and it is as transparent as possible. That completely defines us as an institution and separates us from the rest of the players in the market”, says Stanley Munyao.

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