KBA CEO CHAT - Strategies of Enhancing Enterprise Credit Worthiness

CEO | Kariuki Ngari, Standard Chartered, CEO
MONTH | February 2020
Chat Admin
Good morning everybody, welcome to the KBA chat session
Wandiri Gitogo
Morning guys
Chat Admin
Today's chat topic is Strategies of Enhancing Enterprise Credit Worthiness and our host is Mr. Kariuki Ngari, Standard Chartered Bank CEO
Chat Admin
We are pleased you could join the chat and look forward to an interactive session with you!
David Indeje
Good morning Admin and Wandiri, glad to be a part of the discussion.
Wandiri Gitogo
Hello David. Sure, I am hoping to learn about the strategies to enhance enterprise credit worthiness
David Indeje
My first question to Mr. Kariuki would be, What are the baselines that financial institutions use to determine a business's credit portfolio and quality?
Chat Admin
Wandiri, David...good morning! Glad you could join us
Chat Admin
As we wait for the official kick off at 11a.m. we welcome you to post your questions and comments around the topic of the day i.e. Strategies of Enhancing Enterprise Credit Worthiness.
David Indeje
Question 2: To what extent do commercial banks use profitability, cash flow, liquidity and capital structure to assess credit worthiness of the SMEs?
nuru Mugambi
hi good morning
David Indeje
The previos #CeoChat, Mr. Maina touched on the Kenya Banking Sector Charter, how will play a role in enhancing Enterprise Credit Worthiness?
Chat Admin
Great questions David. All, keep the questions and comments coming so that we hit the ground running at 11am
FELIX LILECHI
Good morning everyone,today being my first time here,i just want to sit and watch on how things are done here.
George Odongo
How does bankings determine credit worthiness?
Chat Admin
Ladies and gentlemen, please welcome our host Mr. Kariuki Ngari
David Indeje
@Felix kindly rusha hata swali moja. Usiketi tuu
Kariuki Ngari
Welcome everybody, those who are here in Kenya, those who are outside, welcome...and happy valentines day!
Kariuki Ngari
I am excited to be here and I look forward to engaging with you on this very important topic of how to enhance credit worthiness for SMEs
Kariuki Ngari
Good morning Wandiri
Kariuki Ngari
Before we get into answering the questions I see that have been posted
David Indeje
Good morning Ceo Kariuki.
Kariuki Ngari
Id like to talk about MSMEs, the micro and small enterprises which are the backbone of our economy
Kariuki Ngari
There are estimates on the number of MSMEs in the country, which are about 1.6mn that are licensed and these businesses create employment for approximately 13 million Kenyans. So MSMEs are really the heart of the Kenyan economy for the contribution they make...supporting them is crucial for Kenya to achieve its development goals. There are many players that support MSMEs, today we will focus on the role of banks.
Kariuki Ngari
So lets start with George...thanks for your quesiton about how banks determine credit worthiness, it is a very good question...
Kariuki Ngari
The first thing that banks will do is to make sure that the business actually exists, and that it is operating legally; thats one thing...the second thing is the nature of the business and its viability. It is very important to make sure that any money banks lend (which ultimately belongs to depositors) should be repaid.
David Indeje
Question 3: From a banking perspective, are Credit bureaus and registries a hindrance to accessing credit or an enabler based on the many people who have been reported by them?
Kariuki Ngari
Secondly, the ability to repay the debt is very important so the bank will look at business cash flows to ensure the business can actually pay the debt.
Kariuki Ngari
Once the banks factor all these aspects and are happy about the viability of the business, then the banks will engage with the borrower. In cases where security might be required, depending on the amount, then an acceptable collateral to secure the debt will also be taken into account.
Kariuki Ngari
Wandiri...there are a couple of things that an enterprise can undertake to enhance their credit worthiness...
Kariuki Ngari
One is good record keeping; it is very important to have good records of your sales, your costs, or in business speak, proper management of your accounts...ensure returns as required by regulatory authorities, such as tax returns, are up to date. You should also demonstrate that you manage your financials well, for example by not having bounced cheques. Today, the credit reference bureau record is very important.
Kariuki Ngari
Felix, karibu...I hope you are enjoying the conversation.
Kenneth Kirumba
Hi Kariuki,
Kariuki Ngari
David you raise some very good points
Kariuki Ngari
Hi Kenneth
Kenneth Kirumba
Lending to the Private sector has been low and contnues to be lower than its potential according to the CBK, even after the repealing of interest rates. What more can be be done to ensure increased flow of credit to MSMEs from the supply side?
Kariuki Ngari
As previously mentioned, profitability, cash flow, liquidity and capital structure (or how much capital the shareholders put into the business), are important in gauging the creditworthiness or the ability of the business to take on debt. The most important in our assessment is can the business pay its debts from its existing cashflows.
Kariuki Ngari
As I respond to David, for those who do not know about the banking charter, let me share the 4 central pillars of the charter
Kariuki Ngari
the first one is customer centric business models, which calls for banks to listen to their customers and take their feedback in product development
Kariuki Ngari
the second pillar is risk based pricing, which means different loan pricing for businesses and individual borrowers depending on their credit risk profile
Kariuki Ngari
the third is enhanced transparency and information disclosure...which means banks must be open in how they price and the information must be publicly available so that clients can compare across different banks...and there should be no hidden charges
Kariuki Ngari
finally, ethical culture...doing the right thing always
Kariuki Ngari
if you look at the risk based pricing and transparency and information disclosure aspects of the banking charter, the charter plays a very big role in ensuring customer are priced depending on their credit profile...if you have a good credit profile you should get good pricing and secondly banks can price better for risk which means banks will lend to more people and thus more people can access credit from banks...on information sharing, customers are empowered to compare across banks to make sure they get a fair deal, which is important.
Kariuki Ngari
David, credit reference bureaus are a big enabler to accessing credit because banks no longer need to broad brush all applications, they can treat each application on its own merit and price accordingly. This is good for you because if you have good credit bureau references, you can get cheaper pricing.
Brian Maiko
There are new entrants in the market by the name of "FinTech" providing credit to users, what is your take on this subject considering that even though their interest rates are much high, Kenyans are willing to borrow from these Apps?
David Indeje
I appreciate the response Sir,
Kariuki Ngari
Kenneth indeed the rate cap law significantly curtailed private sector credit growth; however, with the repeal in November we expect this to reverse. It is early days yet, and it takes time for the policy change to be fully felt, but we are confident that in good time we shall return to the double digit private sector credit growth that was there before the rate cap law was introduced in 2016.
Kariuki Ngari
There are various interventions KBA and banks are leading to promote lending to MSMEs, including the Inuka Enterprise program that seeks to enhance customers capacity to operate their business and therefore access bank credit; the Stawi program which is a digital lending collaboration; and the government and other development partners are working on partnering with the sector to provide credit guarantees where necessary...all these efforts will lead to more access to financing for MSMEs.
Hesborn Nyakundi
Matigari on Twitter asks: Do commercial banks use profitability, cashflow, liquidity, and capital structure to asses creditworthiness for SMEs?
Kariuki Ngari
Brian, clearly the growth of Fintech lending at the prices that they charge shows there is an unmet need in the market and the interventions that have been taken-- for instance the repeal of the rate cap law and the various programs that banks are undertaking as I mentioned earlier--are to address the point you raise...we want to ensure that banks play their role in helping MSMEs access finance at affordable pricing.
Kariuki Ngari
Karibu David
Kariuki Ngari
A few other things on enhancing credit worthiness that I would like to touch on ... include ensuring that you have the right management in place
Wandiri Gitogo
Do you feel like banks/financial institutions are doing enough to share credit information with the Credit reference bureaus. Also, is the motivation only share information on bad/Non Performing loans
Brian Maiko
CEO Ngari, thank you for that feedback. I think there are no clear regulations that govern activities of Fintech companies as it is to Banks. What should be done to have a fair playing field for both banks and Fintech companies?
Hesborn Nyakundi
@JumaG on Twitter :
Kariuki Ngari
Good management ensures that there is a viable business that lasts and can meet its obligation; the nature of our MSMEs in Kenya is typically a one person business, and this person has to be there all the time which is not always possible and therefore puts the business at risk. So it is important to invest in good staff.
Wandiri Gitogo
Also, what information are banks look at when creating a customer's credit profile?
Hesborn Nyakundi
Juma G on Twiiter asks: What is the relationship between mobile loans and credit? Do you think the habitual borrowing from online lenders impact on one's creditworthiness?
Kariuki Ngari
Another area is that entrepreneurs should invest in training themselves on how to manage the business; today quite a number of banks have programs that equip customers with business and management skills. Find out from your bank and take time to attend...and you can also visit the Inuka training program inukasme.co.ke by KBA which is free.
Kariuki Ngari
I see a question from Juma G about if mobile lending affects ones creditworthiness...the answer is yes, it does, it improves your credit rating if you pay on time; and negatively if you do not pay on time.
David Indeje
Sir, Is different pricing currently in place?
Kariuki Ngari
Brian this is a very good question and this is something that the regulators have picked up and at the appropriate time they will feed back on this.
Kariuki Ngari
Wandiri, banks do share, we share both positive and default data with the bureaus, it is not just default data that is shared. Customers who pay their loans on time have a good rating. The process is still ongoing but I think the bureaus in Kenya have come a long way in the years they have been in operation.
Kariuki Ngari
Id like to touch on opportunities for MSMEs
Kariuki Ngari
MSMEs have made a huge contribution to the Kenyan economy and they will continue to do so...technology is going to be a major enabler and will revolutionalise how businesses operate in the next decade. It is important that MSMEs adopt technology in how they run their businesses to be able to compete effectively in years to come. If you look at Kenya as a younger population that has really adopted tech especially mobile tech, you have to ask yourself, do you have an online presence to market yourself, sell your products, source your goods, and are you learning new trends that are influencing consumer behaviour...without fully adopting technology your business will be at risk.
Kariuki Ngari
The other important factor and also opportunity for MSMEs is whats happening in the trade arena...we have seen Kenya make trade agreements with UK, the Africa Free Trade Continental Area (AfTCA) and most recently US opening trade talks, and we need to be aware of these opportunities and be prepared to participate fully.
Chat Admin
We are about to wrap up
Chat Admin
thank you for the great questions and insights
Kariuki Ngari
As I conclude, it has been very engaging and I hope that you will continue engaging with us banks to help your business to not only survive but also thrive in this decade and beyond!
Kariuki Ngari
Asanteni sana.
David Indeje
Asante sana. Nimeshukuru kwa wakati wa kuweza kujibu maswsali yetu.
Kariuki Ngari
Asante David
Kenneth Kirumba
Thank you Kariuki for the great insights. Good Afternoon to evryone.
Wandiri Gitogo
Thank you Mr Kariuki for the insightful interaction
Brian Kamau Njenga
Thank you Kariuki. It was a good session. Learnt quite a bit.
Chat Admin
Ladies and gentlemen, we are now about to close the chat session. We thank our host Mr. Kariuki Ngari for his great insights and guidance on the topic of the day; Strategies of Enhancing Enterprise Credit Worthiness
Chat Admin
We also thank you very much for your participation. Your comments and questions have contributed to the success of the session
Chat Admin
Remember to log back in next Friday at 10am for another engaging chat session. The topic will be Islamic Financing Options and our host will be Abdalla Abdulkhalik, Gulf African Bank, CEO. We look forward to your participation