Kenya is one of the fastest growing economies in Africa. According to Prof Njuguna Ndung’u, Cabinet Secretary for the National Treasury, the latest IMF forecast shows that Global growth is estimated to slow down from 3.2% in 2022 to 2.7% in 2023. Kenya’s economy is estimated to grow by 5.5% in 2023.
However, this can only be achieved if the government lowers the cost of living, improves and easies the cost of doing business to help grow the MSMEs sector and increases job creation. One of the key things in a growing economy is easier access of loans. About 50% of the population has lower credit scores thus not able to access loans to improve their businesses.
This is where microfinance institutions come into play in the lending industry. The primary objective of microfinance is to enhance access and financial inclusion to the less disadvantaged in the economy. They help the population excluded from conventional financial system get loans. Microfinances also process loans faster, thus sorting out emergencies and other financial needs that need a quick fix.
Most institutions in this category use different criteria in targeting their clients. In most cases eligibility is based in the group one belongs in the economy, i.e. gender, age, profession e.g. civil servants, farmers, boda boda operators and SMEs. To access these loans an individual has to be 18 years and above and within the brackets a micro-lender is targeting.
The interest rates vary from one micro-finance to another. Interest are charged based on flat rate; however, some are calculated on a reducing balance basis. These deductions in most cases are done monthly, weekly and daily depending on loan product and lending institution. Most micro-finance institutions do not have a definite system for credit scoring. Thus, making it easier for many customers to access these loans.
Jafari Credit Limited is one of the micro-lenders offering financial access to Kenyans. The company is a member of Centum Group, which is listed in NSE (Nairobi Securities Exchange). The main clients are civil servants.
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The company has done massive investment, processes loans fast, and offers flexible payment period. Its loan products are structured to suit customer’s needs, simplified loan application process, improved TAT for loan processing, excellent customer care services and has a team of professionals.
Other major MFIs in Kenya include: KWFT, Faulu Microfinance, Choice Microfinance, Uwezo, Musoni, Watu among others.
In the lending world, therefore, it will be important to recognize that micro-lenders play a critical role in the economy. In the boda boda sector, for instance, many motor bike riders are now self-reliant because of loans offered by MFIs. This is a big section of the population in the economy that had been left out of conventional financial system. The government, including parastatals, has supported this microfinance sector owing to much needed funds to drive development by civil servants.
Microlenders finance high risk clients by reducing the number of collaterals and considering those with lower credit scores. Through these interventions the economy has experienced rapid increase in economic growth especially in informal sector. That way reducing poverty and improving living standards.
By Alex Kennedy, SIYB-ILO Certified.