KBA CEO CHAT - Microfinance Lending & Accessibility

CEO | Charles Njuguna, Faulu Microfinance Bank, Managing Director
MONTH | June 2015
Donald Kogai
Good Morning everyone, glad to see so many people online already.
Donald Kogai
I look forward to learning more on Microfinance lending
Donald Kogai
Welcome Emmanuel Obala
Chat Admin
Good morning everyone and welcome to this mornings CEO Chat Session
Chat Admin
The topic of discussion today will be on Micro Finance Lending & Accessibility and will be chaired by Charles Njuguna CEO of Faulu Kenya.
Chat Admin
The chat will start promptly at 10am so in the meantime start crafting your questions, update your profile with a profile picture and maybe check out some archives of previous chat sessions.
ANN KAMAU
Good morning
Tony Shilako
Morning all
Andrew Kyuvi
Good morning all
Maurice Abongo
good morning fellows? happy to join you in the chat
Donald Kogai
Good Morning Ann, Tony, Andrew and Maurice. Glad to see you online.
Tony Shilako
Morning Donald , Glad to see you too
Maurice Abongo
morning Donald. thanks
Carol Kipsanai
Good Morning All
Chat Admin
Great to see so many online already. Looking forward to an informative chat session this morning
Antony Kaguthai
Good Morning
Chat Admin
Ladies and Gentlemen, please join me in welcoming Charles Njuguna CEO Faulu Bank to this mornings chat session.
Chat Admin
We now welcome a few words from Charles prior to todays chat session commencing.
Maurice Abongo
???????? welcome Charles
Charles Njuguna
Good morning and welcome everyone to this chat which I hope will be interactive...I think it is a very pertinent discussion and I look forward to the engagement.
Charles Njuguna
Hi Maurice and welcome to the chat.
JACKSON OKOTH
Hallo Sir, the Treasury cabinet secretary in this year's budget has proposed to raise minimum core capital for commercial banks to Sh 5 bilion by 2017. How will this impact on the credit market especially microfinance lenders?
Maurice Abongo
Good morning!! l also look forward in learning about micro finance
Charles Njuguna
As we start allow me to give an overview of the role of microfinance banks
JACKSON OKOTH
It has been the feeling of many that credit from microfinance banks is expensive. Do these lenders adhere the KBBR benchmarks? How do you price your loans?
Tony Shilako
Initialy Mfi targets were to meet new client needs, and to improve their access to capital > driving down interest rates ,some MFIs have changed course and become DTM'S. But the transition from non-profit to for-profit has been rocky and controversial hence reversing gains made .Kindly elaborate on ths
JUSTUS OGUMAH
Good morning Mr. Njuguna,
Maurice Abongo
Charles, most of micro finance institution lend to small bussiness that have already established themselves and ignore the start ups businesses. why is this so. And what is your take from Faulu in giving credit to start-ups business?
JACKSON OKOTH
We have seen a fierce technology race among banks and Saccos. Where are the microfinance institutions in this game amd what technology are you deploying?
Charles Njuguna
I think Microfinance banks play a very critical role in the market in terms of driving financial inclusion for the people at the entry level of the formal banking segment. Given that our customers who are getting into the formal banking segment need financial education and may not have access to collateral, we may not also have access to their banking records (which will facilitate a more in-depth review of their credit standing), there is a need for Microfinance banks which have a clear understanding of the risks and opportunities of this segment to play a critical role in providing credit to this segment.
Charles Njuguna
Good morning Jackson and welcome to the chat...
JUSTUS OGUMAH
Kindly enlighten me on categorization of 'credit only' microfinance institutions and the regulations available governing such institutions
JACKSON OKOTH
thank you sir
Charles Njuguna
....I think with the increase of core capital will enable commercial banks to tap into a wider market segment and over and above that we would have stronger financial institutions with a stronger capital base which will result in product diversification to respond to client needs.
Charles Njuguna
...actually three of the microfinance institutions are already within the 5bn core capital requirement for commercial banks so this is a positive move towards having stronger financial institutions.
Maurice Abongo
Good morning Jackson?
Shad Musyoka
Good morning Charles
JACKSON OKOTH
Morning Maurice
STEPHEN NJUGUNA
Good morning Sir. quiet an interesting discussion
Charles Njuguna
Jackson to answer your question about pricing, the key driver is the macroeconomic environment and then there are bank specific characteristics and customer specific characteristics. So in the case of microfinance institutions, we usually have to attract deposits from commercial banks which we complement with other deposits from development finance institutions (DFIs) -- and these tend to come at a higher interest rate which translates to slightly higher interest rates for customers. Then secondly, the customers we are also interacting with do not have formal bank statements or collateral so to some extent these loans carry a higher risk and hence a higher interest rate to cushion the bank in the case of default. But with the introduction of the credit information sharing framework we are now able to assess the customer risk profile better and their borrowing activity and this should translate to lower interest rates for the good borrowers.
Imali Ngusale
Good morning Charles I'm just reviewing your response to Jack's qestion. What is the rate given to deposits from Commercial banks?
Charles Njuguna
For microfinance banks that are regulated by CBK would price off the KBRR.
paul chepnyamis
What are the factor to consider for one to get funding through micro finance for real estate investment or commercial ? Again is there a limit mcro finance when it come to lending ?
Imali Ngusale
Oh Really! Does this mean that Banks can always shield each other from absence of currencies?
Imali Ngusale
Dear Charles,
STEPHEN NJUGUNA
What are your thoughts on mobile banking and financial inclusion. Does this present a new competition frontier for Micro Finance Banks that have been providing credit to the un banked rural population and how can the institutions respond to this
Marion Agwaya
Good morning Sir, What is the role of credit information sharing in stimulating collateral lending
Imali Ngusale
Dear CharlesWhenever the customer lacks formal bank statements or collateral how does the bank insulate itself from fraud?
Maurice Abongo
apart from CBR what other techniques do use to check for credit worthiness to borroweres?
Charles Njuguna
Welcome Tony and a very nice point that you have raised. I think the purpose of the conversion to DTMs was to enable microfinance institutions to tap into retail deposits from customers and this has progressed quite positively for the industry because we are able to offer wider and more innovative products to our clients at more competitive rates. With this access to additional deposits, DTMs can further deepen their lending to the market segments we are playing in.
Rose Kamau
How do you justify the higher cost of interest by MFIs to the largely lower income population?
Charles Njuguna
Thanks Imali, please clarify your question about currencies.
JACKSON OKOTH
Sir, do you share credit information of your clients with commercial banks and Saccos among other players on the credit information sharing platform?
Charles Njuguna
Thank you Maurice for your question on SME lending. Microfinance does note restrict the lending to established startups. As mentioned earlier the clients we deal with are the ones who are gaining access to the formal banking environment and are often in micro businesses.
Rose Kamau
Secondly are MFI's embracing new technology to improve their knowledge about their customers? How?
Marion Agwaya
How are the microfinance banks leveraging on technology and mobile phones in particular to enhance financial inclusion and lending?
Maurice Abongo
thanks... charles. well answered
john mwangi
sir morning..What are the strategies for microfinance inst to provide credit without collateral,since we are receiving credit from mobile banking which ask for no collateral
Charles Njuguna
Welcome Justus. We have microfinance banks (formerly called deposit taking microfinance institutions). So over and above offering credit facilities, microfinance banks mobilise deposits from retail customers, offer micro insurance, and transactional banking services. The other category is credit only microfinance institutions and these only have loan facilities for clients. These are the two broad differentiating factors. Currently, there are 9 microfinance banks regulated by CBK.
Edward Kalya
Good Morning Sir ,how do you apply technology(Mobile) based on the way customers are using it ,so as to apply it to simplify the structure and grow the savings investments on your end.how is the balance achieved
JACQUELINE NYAGA
Following
JACKSON OKOTH
Sir could you give us some of the technological developments that have occured in the microfinance space over the last couple of months or years?
Charles Njuguna
To answer Marion and Maurice with regards to credit information sharing and credit worthiness, I would say that credit information sharing is a mechanism through which licensed credit reference bureaus can generate a credit report on a bank customer. This has been very helpful in identifying high risk borrowers and contributes to improving the quality of the industry loan portfolio. And now the CIS framework has been amended to include positive data sharing. So banks are providing the full customer data which enables us to price our loans much better for the clients who have a positive credit history. Ultimately this will unlock access to affordable credit for the borrowers with a good credit track record.
Charles Njuguna
Paul as per the CBK regulations, there is a limit to how much a microfinance bank can lend to a single client and this is pegged to the core capital of each microfinance bank.
Imali Ngusale
Dear Charles thanks for your feedback By currencies I meant Kenyan Shillings. Do we ever have a scenario where macrofinacing institutions have more assets (loans) than liabilities (fixed deposits) ?
JACQUELINE NYAGA
Hi Charles,
Charles Njuguna
Welcome Rose and thanks for your question about the higher cost of interest. Loan pricing is dependent on a number of factors, which is the cost of the funds (deposits), operational cost and is also based on the risk which ideally links to collateral availability, access to formal records such as bank statements, as well as costs associated with managing the facility (operational expense). Therefore, we take all these factors into consideration when coming up with the pricing of the loan. That said, we are looking at more innovative ways to bring down costs and operational expenses through channels like mobile banking. As micro lenders we are very sensitive to the impact of pricing on our customers and we continuously look for ways to driving down the pricing of these loans.
JACKSON OKOTH
How are microfinance companies such as yours leveraging on technology to reach out to customers and generate more business?
JACQUELINE NYAGA
What would you advise is the role of Microfinance Banks in furthering the socio enterprise mission the sector is so well known for?
Rose Kamau
Thank you for your precise and honest answer. I look forward to seeing this taking place
stellah kinyua
FOLLOWING, AND ALSO LEARNING
Charles Njuguna
Stephen and Jackson you raise very pertinent points regarding mobile technology...I think mobile banking plays a very critical role in facilitating financial inclusion. With more than 20 million mobile subscribers, this is a channel we cant ignore. We have increasingly seen microfinance banks adopt new technology and leverage mobile banking channels to reach out to our customers including those in very remote areas.
Charles Njuguna
Rose karibu sana for your feedback.
Alex Mugo
Checking in late.......
Eric Wainaina
Thanks for taking the time. There were reports in the Kenyan media of a plan by the Kenya Bankers Association to launch a service which will cut reliance on M-pesa services.
Eric Wainaina
My question is,
Charles Njuguna
Welcome Alex...its not too late to join in...
Eric Wainaina
How will your bank benefit from such a platform to grow its lending especially to microfinance institutions
Eric Wainaina
second question, what more do you think should be done in FinTech(Financial Technology) to grow lending and accessibility for Microfinance
benjamin muli
client thought with introduction of KBRR in kenya will reduce the cost of credit but this has not happened one year down teh line..do we still expect reduction or it will turn out to be what ERC has done to the petroleum prices as they have always gone up with its formation
Eric Wainaina
Thanks for taking the time. There were reports in the Kenyan media of a plan by the Kenya Bankers Association to launch a service which will cut reliance on M-pesa services. My question is,How will your bank benefit from such a platform to grow its lending especially to microfinance institutions? second question what more do you think should be done in FinTech(Financial Technology) to grow lending and accessibility for Microfinance
Charles Njuguna
Jackson I see your question about CIS data, yes, all commercial and microfinance banks share data with the credit reference bureaus. Lenders can now use these reports to asses customer risk profiles based on their borrowing activity. Soon all lenders will be looped into the framework which will result in the same benefit of cheaper loan rates.
Charles Njuguna
Marion there are currently existing loan products where clients can access loan products via mobile technology.
Monica Mwakio
What's your take on Insurance companies buying into MFI/Bs?Is this the future of MFI/Bs?
Charles Njuguna
Thank you John for your question about collateral and mobile banking. As we continue to build credit history with our clients and with reliance of the CIS framework then the need for collateral will over time reduce.
Alex Mugo
Morning Mr. Njuguna. I have infor that Faulu is becoming a bank(correct me if am wrong), with the current competition do we expect may be some new services/products as far as our topic today is concerned?
STEPHEN NJUGUNA
A good discussion it was. Thank you Mr. Njuguna for your time and responses.
Charles Njuguna
Welcome Edward. Technology is an enabler to how we service our customers and we continue to monitor trends to ensure that we remain responsive to this.
JUSTUS OGUMAH
Thank you Sir, Now how easy is it to set up a credit only microfinance, are the capital requirements of dtm as per the Microfinance Act applicable to credit only?
JACKSON OKOTH
THANK YOU SIR FOR YOUR INSIGHTS, COULD YOU GIVE US YOUR EMAIL SO THAT WE CAN CARRY THIS DISCUSSION FORWARD
Chat Admin
Jackson, please get in touch with our PR Office - beverlyn@ginadin.com
Rose Kamau
I second that request by Jackson. Please let us have your e.mail contacts
Josephat Kimanzi
Hi Charles, Kenya’s parliament is proposing that the country pegs interest paid on deposits as a fraction of the rate that banks charge customers for loans, reigniting the debate on introducing interest caps. You comment on this sir.
Maurice Abongo
thanks you Charles. it was such an insightful discussion. your email address is on demand!
JACKSON OKOTH
i will so admin
JACKSON OKOTH
i will get in touch with ginadin, we also need your mugshot
Charles Njuguna
Benjamin thank you for your point. The fact is that we have seen interest rates have come down from a high of 22 percent in 2012 to 17 per cent in January 2014 and further down to 15 percent during this year. Which is a very positive trend in stimulating lending that consequently drives economic growth.
Chat Admin
Dear participants, thanks for all your questions and comments. We have now gone over our time schedule and Charles is now wrapping up comments and thoughts to the outstanding questions.
Chat Admin
We thank you all for making this a very interactive and informative discussion.
Charles Njuguna
Alex as shared earlier we are a microfinance bank. And yes, we will be looking to introduce innovative products and services, as well as work towards improving the customer experience
Chat Admin
Justus, for more information on the requirements to set up a credit only micro finance institution, please visit the Central Bank of Kenya's website - https://www.centralbank.go.ke/
JUSTUS OGUMAH
Thank you
JACKSON OKOTH
Thank u all and our guest
Charles Njuguna
Hi Josephat, in a market like Kenya where interest rates are market determined, it is the Kenya Bankers Association's view that a legislation which seeks to bring in an element of control would essentially mean that we will end up eliminating a big percentage of potential borrowers whose credit risk profile is considered higher than what the proposed cap would allow for. The proposed capping of interest rates will work against the financial inclusion agenda which has been a great achievement for Kenya.
Charles Njuguna
As we wrap up I would like to thank everyone for participating in this very rich discussion on microfinance lending and accessibility. The banking industry remains committed in driving the financial inclusion agenda, and micro lenders in particular will be key in transforming customers lives which will contribute to the Economic Pillar of Vision 2030.
Charles Njuguna
Welcome Justus.
Charles Njuguna
Thank you all again. Goodbye and have a lovely day ahead.
Chat Admin
Ladies and Gentlemen please join me in thanking Mr Charles Njuguna for this insightful and informed discussion on microfinance lending and accessibility.
Alex Mugo
Thank you Charles for the information, We wish you all the best as you take the institution to the next level
Donald Kogai
Thank you Charles
Maurice Abongo
thank you Charles! am now more informed
Edward Kalya
Thank you Charles, for the informative session ,have great day ahead too
Maurice Abongo
Good day too
Chat Admin
Please keep an eye on the Archive page (http://chat.kba.co.ke/index.php?r=chat/archives) for a full transcript of this mornings and all past CEO Chat sessions.
Paul Gitonga
Thank you Charles.This was a very informative session!
Rosemary Sam
Thanks Mr. Njuguna. Very informative session.
Chat Admin
Thank you all once again. Unfortunately this was the last chat session for this quarter. We look forward to interacting with you all at the next quarter chat session.
STEPHEN NJUGUNA
I look forward to next quarter.
SAMUEL WAINAINA
I always forget to be on time. please admin set a system reminder may be through email or mobile sms