Jijenge Credit talks new opportunities in SME lending

By Newsroom Last updated Sep 15, 2022

The survey confirms earlier studies by showing that digital credit appeals to younger customers who tend to be male (55 percent), urban (55 percent) and relatively highly educated. However, the customer base for digital credit seems to be diversifying, especially from a gender perspective. Previous research estimated a 59 – 41 percent ratio of men to women unique borrowers in digital credit. This survey reduces the gap to 55 – 45 percent. However, the positive trend in unique borrowers does not mean that the gap is reducing also in terms of volumes and values of digital lending. Interviews with providers confirm that men tend to borrow more often and larger sums, on average.

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By Remie Otieno

The economic impact of the Coronavirus pandemic, coupled with the imported inflationary pressures from the Russian war, have ended the previous credit cycle and left businesses across the country reeling.

In this new credit cycle, SME lending will be not only one of the most economically important but also one of the most profitable contributors to banking revenues.

Despite the opportunities that lie ahead, commercial banks are expected to struggle to create the right lending solutions for their SME customers and to cut the cost of serving them owing to the expected rise in the benchmark lending rate by the Central Bank of Kenya (CBK).

“Overall, I expect loan demand to continue growing at a much faster pace after August and several trends in the post pandemic market will influence how financial institutions can capitalize on SME-lending opportunities,” offers The Chief executive officer of micro lending firm, Jijenge Credit, Peter Macharia.

The cost of borrowing in the country could rise in the coming weeks, according to projections by analysts who now predict the Central Bank of Kenya (CBK) will increase its base lending rate by a further 0.5 percentage point or more to cushion the runaway inflation scare.

Projections by the ICEA Asset Management come just two weeks ahead of the regulator’s Monetary Policy Meeting (MPC) slated for July 27 – in what could usher in an even higher interest rate regime, barely three months after a similar review by the committee was done in May.

When such rates are raised, commercial banks increase their interest rates on loans and mortgages, which in return discourage borrowers from seeking credit facilities to finance both long and short term projects, leading to slowed economic growth.

MPC officials were compelled to review the benchmark lending rate to 7.5 percent two months ago due to the rising inflationary pressures, making it the first hike since July 2015. Meaning the anticipated July appraisal, could be the second trudge in as many months.

“In line with the trend internationally, the Monetary Policy Committee (MPC) is expected to further raise the Central Bank Rate by 0.5 -1 percent during its meeting later in July.

With the company’s customer portfolio comprising 80 percent of micro, small and medium enterprises while the remaining 20 percent being employees of various companies, Macharia says part of Jijenge’s ambitions will be to expand its lending volume in a bid to meet the demand.

“The market will open up and based on our assessments we can forecast an increase in the demand for loans in key sectors like education and business expansion for business owners,” said Macharia.

Demand for Commercial Real Estate (CRE) loans, according to Macharia, should continue to be solid, particularly for industrial and multifamily. Retail will be positive but slower in the second half of the year as inflation continues to impact consumer spending.

Demand for office space, according to his observation, will be location-specific but should see some slowdown as labor constraints will impact demand for additional space.

As interest rates move up, demand will inevitably be impacted as many commercial real estate projects may not make economic sense at higher rates.

“Demand for auto loans should continue to be strong. A combination of supply shortages and less mobility during the pandemic has pent up demand for vehicles. As supply chains improve and high fuel prices generate a need for newer more efficient autos, demand for new autos will definitely go up,” said Macharia, with regards to an expected demand in auto loans.

It is estimated that there are about 7.41 million MSMEs in Kenya, and only 1.56 million are licensed while 5.85 million are unlicensed – meaning the demand for loans among the subsector is inestimable, according to Macharia.

The firm offers car loans to vehicle owners with valid logbooks at relatively low interest rates with repayment period of up to 12 months, double the time offered by other micro-financiers in Kenya whose period can be stretched by up to 24 months.

Most of its logbook loans customers are people looking for emergency loans to sort out situations that require quick credit.

Such challenges have been compounded by the pandemic since the first case was reported in March of 2020, and the ongoing European war, throwing many businesses in jeopardy with many companies forced to trim their work force while others closed shop altogether.

As a result, the need for financial emergencies has remained constant among Kenyans – both employed and those in the self-employment category since the pandemic hit.

Further, the introduction of the digital interface check-off system by the firm in September 2020, Macharia says, will also play a key role in its lending ability.

The move had been informed by a steady rise in demand for loans witnessed since the easing of movement restrictions in July, as more individuals and businesses took up loans to manage their operations.

The company last year disbursed over Sh500 million for pandemic-related loans and moratoriums – which showed the demand for loans among Kenyans who are still reeling from the adverse impact of the fourth wave of the virus as well as a distraught economy.