City micro-finance goes hunting

The office setting of Onepay Credit Limited in the high-end Kilimani Estate, Nairobi is in contrast with many micro-finance startups in Kenya. 

Many tend to spring up from slums and low-income neighbourhoods where their targeted customers eke a living.

Here they find people with no security nor bank accounts to their name but thirsty for loans in the range of Sh1,000 and Sh40,000.

Onepay is taking a different path targeting clients who banks shun but in need of mega loans for various projects.

“We require either a title deed or car log book for our lending,” says Susan Karimi, general manager at OnePay Credit in an interview with Smart Business.

“The profile of our customers are those who ordinarily fit for a bank loan, but either have banks reject their applications or cannot wait weeks to access their credit. Our strength is the turnaround time.”

1, 500 new customers

Started last year, the micro-financier has lent more than Sh100 million to 920 businesses and individuals and is eyeing 1, 500 new customers before the close of the year.

It started small targeting salaried and small businesses in need of short-term cash flow, but is now setting its sights on the market served by commercial banks, construction and assets purchase and LPO financing.

Its shareholders have provided an additional Sh250 million for lending riding on the growing need for short-term capital amid acute slowdown in economic activity, with many people complaining of hardships and lack of cash.

This is emerging in an era when commercial banks have curbed lending especially to those they deem risky.

The brakes on lending were first blamed on legal caps on commercial credit rates, imposed in 2016, taking away the flexibility that lenders say they need in order to accommodate customers deemed as risky borrowers.

The government removed the cap last November after it was blamed for curbing credit growth, but economic shocks that followed Covid-19 have seen banks cut back on loans for fear of default.

“The economy is on a recovery and businesses and individuals require cash and at times urgently. This is the opportunity we are seeing and tapping into,” said Ms Karimi.

Economic slowdown

Already, Central Bank of Kenya has warned that small and medium businesses need urgent help to survive the economic slowdown caused by the novel coronavirus, and many are at risk of shutting down.

Onepay is reaching out to those who have been ignored by commercial banks.

Ms Karimi reckons that their strength is on loan size, speed and low interest rates relative to other micro-financiers and digital lenders.

“Loans based on titles are processed within two weeks while banks take months. We process credit within five hours for logbook loans,” she adds.

“We are offering loans of up to Sh10 million, but we can give more depending on the value of the title deed or log book and lenders ability to pay.”

Onepay say it is an ethical alternative to digital loans who have invaded Kenya in recent years, saddling borrowers with high interest rates and leaving regulators scrambling to keep up.

From having little or no access to credit, many Kenyans now find they can get loans in minutes. This has seen digital credit go mainstream, but borrowers are learning that with financial inclusion comes financial risk.

The market is largely unregulated, and there are no controls on interest rates. Firms such as Tala offer loans with 180 percent annualised interest. On some apps, they’re even higher.

Debt collectors

People who once borrowed mainly from family and friends are now being bombarded with ads for quick money and calls from debt collectors.

“Our credit appraisal system is water tight, and so far we have not been pushed to a position where we have to auction security for loans recovery,” says Ms Karimi.

She in part attributes the rock bottom defaults on the comparatively lower interest rates and a credit rating scrapped off prospective borrowers past financial dealings and their cash flow.

“We offer loans for as low as three percent and borrowers offered credit of up to one year are repaying within three to six months,” says Ms Karimi.

Onepay is targeting to open branches in Mombasa, Kisumu and Meru later in the year as it sets sights on becoming a deposit-taking financier—which will require fresh regulatory approval from the CBK.

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