There is a word experts and laymen alike use whenever unemployment is discussed – entrepreneurship. Entrepreneurship has not only been seen as the savior of unemployed youth but also as an avenue for both personal and national growth, leading to mushrooming of several entrepreneurship forums including the Obama led Global Entrepreneurship Summit (GES) that saw a sitting US President visit Kenya for the first time in late June 2015.
The promotion of entrepreneurship as the best avenue for wealth creation has made many both young and old to seek innovative ideas for creating own businesses, and just when they plan to translate their ideas into viable enterprises, they encounter a significant stumbling block – access to credit needed to jump start those businesses.
The young and old do not want to approach the established lending institutions for two reasons – 1. the cost of credit and 2. the prohibitive terms and conditions for credit access. In addition to barring entrepreneurs from accessing easy credit, the banks and microfinance institutions also put stumbling blocks to ordinary Kenyans interested in quick cash for emergencies or a beer during a lonely boring weekend.
To satisfy the demand for credit, the informal sector innovated a product they referred to as shylocks. These were, and still are, business men and women willing to give quick cash secured by valuables such as household electronics and other portables, smartphones, laptop computers, expensive jewelry, among others. Most of the time the maximum amount one can get is a third the value of the collateral. But the shylock loans are outrageously expensive. A three weeks loan (standard loan period with shylocks) attracts interest rates of between 25 and 35 percent with the higher interest rate being the most common.
Safaricom and a few banks saw the threat from the shylocks and thus came up with products we now know as Mshwari, MBENKI, and KCB MPESA. These together with the latest Eazzy247 loan from Equity Bank have enabled a number of Kenyans access credit without the stringent conditions that are prevalent with the traditional bank loans. What an individual needs in order to access these mobile loans is a mobile phone number that has been in use for no less than a given period time, and the loan amount one qualifies for is dependent on mobile number usage rate. When one saves and/or borrows on the platforms, and repays the borrowed loans in time, the creditworthiness increases. But as was highlighted in Kachwanya.com, the Mobile Money Loans are money fleecing schemes as annual interest rates are as high as 90 percent on Mshwari and 72 percent on KCB MPESA.
It is therefore clear that as much as shylocks and mobile money loans have tried to cater for the micro to small unsecured loans market, there still exists a vacuum that is being filled by a new loan format called peer to peer lending. Today the peer to peer lending in Kenya include Zidisha, Mkopo Rahisi, Branch, and a new platform that is 100 percent Kenyan called Credit Sawa.
The mobile app based Mkopo Rahisi and Branch haven’t disclosed whether their systems are indeed peer to peer, but the web based Zidisha allows borrowers to source for credit in a crowd funding format. Lenders in the platform will review a few factors and when satisfied, they lend the borrower all or part of the requested amount. New borrowers can either be invited by a friend to the platform and if the friend has good credit rating, then the new borrower’s initial loan amount will be substantial. After repaying a loan, Zidisha doubles the amount you can borrow in the next round – and this has made many micro and small businesses in Kenya inject money to grow the businesses. According to today’s Zidisha’s front page, a Kenyan lady has been able to raise $1,128.
By the time they were featured on Businesses Daily, which was on November 19, 2015 and a day before today, Credit Sawa explained that they already had 100 registered borrowers and three lenders that include Family Bank. Credit Sawa differs from Zidisha in that it is not a crowdfunding platform, but rather operates like a loan’s classified marketplace where once a lender has identified a borrower, then the borrower deals with the lender according to the terms and conditions of the lender. Since Credit Sawa hasn’t revealed the interest charged on loans, it is assumed that the interest rates are determined by the individual lender.
There are two obvious advantages the peer to peer lending in Kenya has over the now famous Mshwari, KCB MPESA, MBENKI and Eazzy247 Loans and these are 1. lower interest rates and 2. loan limits. In most cases, new borrowers on mobile money loans cannot borrow anything close to shs 50,000. The few who have reached those levels are the weekly/monthly consistent borrowers. But since one is unable to borrow substantial amounts on the mobile money platforms, it means entrepreneurs cannot rely on them to grow their businesses. The peer to peer lending platforms on the other hand offer the ability for an individual to quickly rise in credit worthiness, and by the time one applies for a third loan, he or she can borrow money way past the hard to reach shs 50,000. Coupled with reasonable interest rates, it is easy to see that soon peer to peer lending in Kenya will surpass the popularity of mobile money loans.
But it is also prudent to state that all of the current peer to peer lending in Kenya rely on Internet access where Mkopo Rahisi and Branch wants users to download their respective apps whereas Credit Sawa and Zidisha are web based. The mobile money loans on the other hand are based on text messages and USSD platforms, so their adoption across the country have been very easy. What the peer to peer lenders ought to do, therefore, is to avail their services on the same text message and USSD platforms in order to effectively compete with the mobile money loans.