Businesses & Financial News

Jimal Ibrahim’s bid to bring back cashless fare payment

By Steve Umidha

The use of a cashless payment system in the matatu industry is likely to return nearly 10 years after similar plans to have PSV owners switch to electronic fare collection famously flopped.

An earlier attempt by the government in November 2014 collapsed following strong opposition from matatu operators who felt the move was a ploy to monitor their daily earnings for taxation motives.

But industry stakeholders and tech providers now say the market has matured for such innovation after mothballing the scheme for several years and whose appetite, according to them, has been resuscitated from Coronavirus pandemic experiences.

“We have been engaging directly with chairmen of matatu Saccos and the desire is there, the attitude has tremendously changed which is a departure from the chaotic noise we come across then. That time the market was not ready,” said the Matatu Operators Association Chairman Jimal Ibrahim.

Moving to a cashless era by stakeholders, according to Mr. Ibrahim will however, need the State’s backing if the idea is to succeed this time around. The market is hopeful its implementation can be undertaken by year end.

“The engagements by other stakeholders and the government have been successful but we need more authority from the ministry of Interior,” confirmed Ibrahim, who is also the Chief executive of Huduma Credit, a new financial solution offering cheap loans tailored for PSV vehicles, meant to boost such plans.

The digital payment system requires passengers to get pre-paid cards or use mobile money for payment of fares in PSV vans, but the move is still opposed by a section of operators with stickers labeled, Hakuna kulipa na M-pesa, a Swahili phrase loosely translated to mean no mobile money payments, often seen inside some matatu vehicles.

If endorsed, a digital fare collection system is expected to restore sanity in the chaotic sector and eliminate criminal cartels in the PSV market that continue to hold back such innovative decisions owing to its technical capability.

Further the move is hoped will for the first time provide the Kenya Revenue Authority (KRA) with a platform to track and trace incomes in a sector that grosses more than Sh1.02Billion daily or Sh30.6Billion every month and Sh 368 Billion annually.

Money collected through the PSV e-ticketing system was to be remitted in a bank, making it easier for vehicle owners to access loans through credit unions and other financial institutions offering such products at affordable rates.

“Pioneer financial solution providers such as Huduma Credit gives out loans to PSV at a cheaper rate of 5 percent compared to other lenders offering between 9 and 13 percent rate. In two years we are hopeful this platform can grow to become a bank specifically for the PSV market – a first in the market,” commented Ibrahim.

As a result, matatu owners seeking credit and emergency loans will soon have a financial institution of their own in what promises to offer reprieve on the sector that has struggled to appease local banks due to its long-standing negative status.

Those plans according to the Association of Matatu Operators (AMO) Chairman Jimal Hassan, could be in place as soon as 2025, with such a bank targeting over 235,000 matatus estimated to be on Kenyan roads.

“We have never had a financial platform catering for our needs and it is our hope that the need to come up with a bank tailored for the sector could help address some of the financial challenges affecting the sector,” he confirmed.

Such a move is also expected to see owners of Public Service Vehicles (PSV) guaranteed loans for vehicle repairs as well as insurance fees for automobiles as old as those manufactured between 1998 and 2013 – with this age group not financed by local banks today.

Through Huduma Credit, which only serves PSV vehicles, Ibrahim says the micro lender, currently covering maximum loans to PSV owners by Sh1million monthly will next month increase its credit volume to Sh5million owing to the growing demand with future plans to convert the institution into a PSV-only bank.

“We have seen a huge demand since the informal launch two months ago and this has convinced us to increase our loan volumes to serve the matatu ecosystem which was one of the most affected sectors when Covid-19 hit,” said Hassan – who is the founder of the institution, estimating that 30 percent of all matatus were forced out of the road during the pandemic for lack of financing.

Huduma Credit gives out loans to PSV at a cheaper rate of 5 percent compared to commercial banks offering between 9 and 13 percent rate – with most lenders often asking for six months and certified bank statements sale agreement and other collaterals.

According Ibrahim, the lender relies on matatu Sacco chairmen for clients’ referrals owing to their vast knowledge of their members who also work as guarantors to curb issues of loan defaults.

“These Sacco chairmen are my super agents, and they earn commissions. The do proper background checks of the borrower who we only asks for their Mpesa statements,” Mr. Hassan said, adding that the platform – also Sharia’ah compliant has begun formal engagements with banking regulators ahead of its formal launch.

The move, if successful could see unprecedented growth in the sector that grosses more than Sh1.02Billion daily or Sh30.6Billion every month and Sh368 Billion annually, according to available statistics.

The move also coincides with a return in the use of a cashless payment system in the matatu industry after10 years after similar plans to have PSV owners switch to electronic fare collection was frustrated.

An earlier attempt by the government in November 2014 collapsed following strong opposition from matatu operators who felt the move was a ploy to monitor their daily earnings for taxation motives.

But industry stakeholders and tech providers now say the market has matured for such innovation after mothballing the scheme for several years and whose appetite, according to them, has been revived from Coronavirus pandemic experiences.

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