KBA CEO CHAT - Strategies of Enhancing SME & Household Access to Credit

CEO | David Mukaru, Caritas Microfinance Bank, CEO
MONTH | May 2021
Chat Admin
Good morning everyone!
Chat Admin
Welcome to this morning's CEO chat session.
Chat Admin
Our topic today is Strategies of Enhancing SME & Household Access to Credit and we are honoured to have the session hosted by Mr. David Mukaru, Caritas Microfinance Bank CEO
Chat Admin
I see a few participants have already joined the session. Eric, Dennis, Phillip, Victor and Hesborn ...good morning!
Chat Admin
Charles and Kelvin..karibuni. We are glad you could join the chat.
Philip Kilonzo
Good Morning
Aringo Fredrick
Good morning
eric asuma
Good morning and looking forward to interacting with the CEO
Dennis Okore
Good Morning, looking forward to the conversation
Chat Admin
As we wait on the official start, please feel free to send your questions and thoughts around today's topic so that we hit the ground running at 10am
Kevin Kimwatu
looking forwardto the conversation.
lynnette wangugi
Good morning
Ambrose Karanja
Eagerly waiting for the conversation
David Mukaru
Good morning Kenyans and glad to be here. I am glad to be amongst Kenyans discussing the challenges we face, especially SMEs, and in particular the challenges brought about by COVID-19. Id be glad to share my thoughts on what microfinance banks are doing to help SMEs and also get your feedback on how we can help address the current challenges.
David Mukaru
Ambrose welcome to the chat
David Mukaru
Good morning to all who have logged in, Lynette, Kevin thank you for joining us
David Mukaru
Id like to start by giving a general overview of microfinance banks, which have a different model from commercial banks.
LYDIA WACHIRA
Good morning! glad to be here too.
eric asuma
Glad to have you today on CEO Chat Mr Mukaru. From where you sit, how can SMEs position themselves better to access credit from Microfinance banks? Also, what advice would you give SMEs without Collateral ?
David Mukaru
Microfinance banks have evolved since the early 1990s...initially the majority were NGO institutions, which were not taking deposits, they did not provide banking services, but that has evolved and now microfinance banks accept deposits, about 14 of them, and they offer a wide range of financial services. Over the period, the 14 registered microfinance banks have really helped communities through group lending methodology and addressing issues around collateral which a majority have challenges accessing. The microfinance business model uses social collateral and what we call in business appraisal, cashflow based lending, where its the ability of the business to repay a loan that matters -- not the collateral; and MFIs have perfected this practice.
David Mukaru
So when it comes to micro and small enterprises that have really been affected by COVID-19, Id like to give a perspective on the impact we are talking about...
David Mukaru
In Kenya we have about 8.5 million informal enterprises out of 10 million enterprises in total...these informal businesses are at the level of our mama mbogas and 85% of enterprises are at this level. Only 14% of businesses in Kenya are formal micro enterprises. Approximately 1.1 percent are small enterprises, employing 10 to 49 people; and 0.1% are considered medium enterprises in Kenya. In terms of even how businesses are sitting, we see a challenge -- the level of informality in Kenya is excessively high and one of the area microfinance banks are working is to grow our micro enterprises to be more formal and empower business owners to formalize and have confidence that they are contributing to the economy. That first step of formalization is very critical...even as a country it is very critical to formalize enterprises because a majority are based in the rural areas where agriculture is taking place...if we formalize rural businesses we formalize agriculture and thus give a big boost to agriculture sector and really change and transform this country into a higher income earning country.
David Mukaru
Thank you Eric for your question
David Mukaru
Microfinance banks are ready and willing to walk with you to understand your business; and to provide total financial solutions for you to be able to access deposit products, and also transaction products, bancassurance and also loan products.
eric asuma
Would you also share more details about the interest rates charged by Micro finance Institutions. Do the rates differ from from the commercial banks?
stephen agui
Good morning ,glad to follow my captain on the topic
Kevin Kimwatu
What is the future of microfinance
David Mukaru
For a SME to best position themselves, I would recommend they open an account to establish a relationship with the bank. Utilize the banking technology that is available, for example having a paybill that terminates monies into your operative accounts -- as opposed to cash transactions...this helps create a track record and build your relationship with the bank. I would recommend you start small, borrow a small amount and graduate your business in an organic way...one of our challenges as a country is businesses want to grow with a big bang...the best way is to grow over time and increase your capability which results in a well balanced, sustainable growth. A majority of microfinance banks will use informal collateral, and business assets that the business has (for example machines0, so we can fund the business using cashflows and other resources you have.
Kevin Mulwa
What are your plans on product diversification as this has always limited MFIs?
David Mukaru
Interest rates charged by microfinance banks are based on the type of product that the customer will access. There are short term loans, medium term loans, and long term loans which all attract different rates. The loan purpose also informs the rate. Interest rates range from 1 percent to 3 percent for short term loans; and most microfinance banks are open for negotiation based on the discussions that would be done.
David Mukaru
Kevin Mulwa, thank you for your question
stephen agui
What are characteristics of a SMEs and how do we differentiate from from a small business enterprise.
Miriam Mukuru
Thank you Mr Mukaru for your insights. What measures do MFIs take to protect themselves when lending to the high-risk SMEs?
David Mukaru
Product diversification is about the market itself...at the initial stage the market was how it was sitting but now customers and microfinance banks have become very aware and understand what they want and thanks to financial literacy consumers know their financial rights. Thanks also to microfinance banks and institutions we have seen the industry grow, and thus perhaps has created its own challenge! which is to provide the four levels of financial services: 1) deposits and savings products; 2) transactions and payments -- moving money from one person to another, one business to another; 3) providing bank assurance products -- all 14 microfinance banks have a bancassurance service (both local and international); and finally provision of a variety of long term, short term and medium term loans...so today microfinance banks provide the full range of financial services in Kenya.
David Mukaru
Thanks Stephen
Kenfrey Muriungi
Based on the conversation, Microfinance Banks have positioned themselves as the best partners to the SMEs, However, the uptake of the products and public awareness on the availability of such a partner is low. in view of this, what are the challenges encountered in trying to partner with SMEs and what could be the possible solution(s)
David Mukaru
As a country we have defined our businesses very well, we have policies that have differentiated MSMEs. We do not have a business called "SME", we have micro, small and medium enterprises, and they are all clearly differentiated by the policy. In Kenya, a micro enterprise employs 1 to 9 people and has a turnover around it (approximately 500,000); the small enterprises employ between 10 and 49 people; and medium enterprises employ between 50 and 99 employees. And that is spelled out in the Micro and Small Enterprise Act of 2012 which has helped us define these categories very well and microfinance banks follow this categorization.
David Mukaru
Hello Miriam, thank you.
David Mukaru
Regarding risk management, microfinance banks have lending policies which clearly define their risk appetite, and how they mitigate against those risks. Relationship management is our number one risk mitigation approach. Assessing the character of borrowers and strong appraisals via available tools to be able to measure the ability of businesses to repay is also important, as well as, training and marketing exposure to provide our MSEs with all the tools they need to improve their businesses...our main objective is to support micro and small enterprises, so they can grow and have more impact on the ground; for us it is about partnerships and shared risk...we support each other and support businesses to grow.
James Muiruri
@ Mr. Mukaru - in your view, where does Customer Experience & Automation play within Strategies of Enhancing SME & Household Access to Credit?
David Mukaru
Thanks Kenfrey...microfinance is still a young industry that started in mid 1990s and it has really positioned itself as a solution for mwanainchi financial challenges, so far so good, the challenges are there -- especially in terms of technology adoption...but all 14 microfinance banks have enhanced their technology to be able to provide the last mile financial service provision.
David Karisa
@ Mr. Mukaru - thank you for your insights on the formalization of rural economies. How much of a role does big data play in the formulation and implementation of formalization of rural economies?
David Mukaru
The microfinance banking sector has worked very closely with clients on the ground to open branches across Kenya, opening agencies where they are not able to reach banking services; and working with clients and the regulator to come up with solutions to the challenges that Kenyans have. We have employed media strategies to reach as many clients where they are: churches, schools, farms, groups, we have tried and will continue working with Kenyans to promote microfinance as a solution for all. This CEO Chat is an example of the many ways we are promoting microfinance banks.
David Mukaru
James...thank you for raising this important area. Focusing on the customer and providing the various solutions that they require is key to reaching deeper into markets; and definitely automation and relationship management are important components to ensure access to financial services. For example, Caritas is now six years old and we have customers that have been with us since inception...they have grown with us...step by step...and these customers have informed our products and everything we do...Our core value says everything we do must start and end with the customer. As such, we are customer centric. We provide household financial services to reach as many people as possible and reach the informal sector. For example, we have provided solutions to self help groups working with the church and this has enabled these groups to access financial services from the comfort of their homes. All these initiative are a demonstration of our customer centricity.
David Mukaru
Thank you David
David Mukaru
Big data to me is about customer insight. I think convergence and use of all the available data that sits in the rural areas -- and making decisions using that data -- is very critical...we invite all value chain players in the rural areas to come together so we can harness the power of data that is sitting in all the partnerships and community groups in the rural areas, that way microfinance banks will provide a 360 degree financial services to our rural clients.
David Mukaru
Hi Kevin I see your question earlier about the future of microfinance banks
Chat Admin
Hi everyone, our session is almost coming to a close
James Muiruri
@ Mr. Mukaru - appreciate your response and fantastic to know that you've purposefully set out that...."everything we do must start and end with the customer"
James Muiruri
@ Chat Admin - Thank you for facilitating this, and many sessions to come.
David Mukaru
With 85% informal businesses in Kenya, the role of microfinance in Kenya is well cut out. Microfinance needs to focus on the 85 percent of informal businesses through use of technology to provide both financial and non-financial services -- this is the way forward; provision of a wide range of financial services is a significant opportunity microfinance banks are bound to ensure they deal with. The opportunities are there...the people are there...the issue is to provide financial services to the people, that role is still open...that challenge is still open...we need to transform our businesses, 8.5 million businesses need to walk along that journey and it is the duty of microfinance banks to take a leading role in that regard.
David Mukaru
Thank you all...I really appreciate the engagement and discussion.
David Karisa
Thank you too.
David Mukaru
I really would like to thank everyone that has joined us today, the future of the economy of Kenya is promising despite the challenges we face due to COVID, and microfinance banks will play a role in this, and we believe MSMEs will create employment and financing MSMEs will enable them to grow and employ millions of people.
David Mukaru
We invite you to https://caritas-mfb.co.ke/ to learn more about our products and services...we would be happy to serve you!
Chat Admin
Ladies and gentlemen, our session has now come to an end. We thank our host Mr. David Mukaru, Caritas Microfinance Bank, CEO, for his insights through this session
Chat Admin
We also thank you all for joining the chat and for your insightful comments, questions and overall engagement in this morning's session!
Chat Admin
A transcript of this morning's chat will be available on the archives page and you are welcome to log in and catch up with the insights from the chat session even after we close the chat room.