Mwanachi Credit, a microlender that started with Sh30,000 capital

The microfinance sector in Kenya is fast rising as an instant spot for personal and business loans. The non-deposit-taking creditors have, however, been accused of misusing the unregulated space to charge high-interest rates or change loan terms midway.

Mwanachi Credit Limited is one of the biggest player in this industry, commanding 10 per cent of the country’s market share, thanks to its popular Logbook lending product.

The firm which solely relies on directors’ contributions entered the business six years ago, lending all of its Sh30,000 capital. Today, it can comfortably lend up to Sh20 million to a single borrower.

The Star Newspaper’s Victor Amadala had a sit-down with Frederick Wang’oma, a general manger at Mwananchi Credit who gave an insight on the company’s operations and a general overview of the microfinance sector in Kenya.

What informed your product choice, Logbook Lending?

We provide secured loans. We are known to use the logbook as the main source of security for a simple reason. For many Kenyans, a car is the first asset they acquire and in most cases, it is the only asset they can leverage on to get financing.

For those who don’t have a car, we also help them to acquire a car through our Asset financing program.

Therefore we are basically responding to market needs. However, we accept other forms of security as well including Title Deed and NSE stocks.We also do other lendings as well like Salary Check off loans for Civil Servants and parastatal staff.

The micro-lending industry, just like other sectors were hurt by Covid-19, what was the impact for Mwananchi and how are you coming out of this?

Covid-19 affected all of us but it especially hurt our clients very hard. This was a grand opportunity for us, as a lender to actually support our clients during that challenging period – especially when the economy almost ground to a halt.

We had to restructure most of the client’s loans and even gave them interest payment holidays. We also scrapped off penalties to ease the burden for clients.

More importantly, we tried to ensure that we would not be quick to repossess any client’s collateral during that period, especially those whose payment difficulties coincided with the Covid -19 pandemic.

That said, we also were probably the only lender who never stopped during the height of the pandemic. We kept lending because we understood that life continues and people still needed financing to plan their lives.

Was it a big risk? Yes, it was. But, what option did we have?

There is a joke that says that we lenders lend you an umbrella during the sunny period and demand it back as soon as it starts raining. We do not want to fit in that category.

As an industry stakeholder, what's your insight on the micro-lending space in Kenya? Do you think existing policies are supportive? What are your proposals?

The Micro lending space is a very important part of the overall economic space in Kenya. It has increased credit inclusion. There was a time when the only people to get loans were permanently employed people from large companies. But now, the Microcredit space has opened up this bracket.

Most of the Micro Credits in Kenya, like us, are non-deposit taking. This means that the shareholders assume all the risk for their personal funds, which they lend out. Given that risk, it is only fair that they self-regulate in a free market. This is currently the case, and I would highly recommend we keep it that way.

The sector is rocked with high-interest rate allegations and dodgy terms, what is your take?

As mentioned earlier, the biggest risk in this sector is actually borne by the financier. They normally lend to sometimes very risky borrowers whose credit history would not qualify them to borrow from mainstream financial institutions.

That said, microfinance companies have to price this risk accordingly to ensure that they remain a going concern. When the market started, there were few providers and they could afford to charge very high rates. But, the economics of supply and demand has now set in. The market has found itself forcing lenders to adjust their rates downwards.

While I may not speak for other lenders, we as Mwananchi have seen it fair to price our loans as fairly as possible and some of our rates are actually the lowest in our sector enabling us to compete favorably even with mainstream lending institutions.

So in short, the competition within the sector will naturally force the players to charge fairly and those who don’t conform will find it hard to adapt.

Mwananchi has been accused of short-changing borrowers; do these claims hold any water?

Mwananchi is currently a market leader. These are not my words but you can even see from these award trophies we have received here in my office. We did not become market leaders by not putting our clients first.

Of course, when you are ahead, given the cutthroat competition in our sector, you will always find stories fabricated or pulled out of context to make you look bad.

Our loan book is very clean. Most of our clients repay their loans on time as planned and they even come and refill them when they are done.