Microcredit banks in Kenya are attracting foreign online intermediary financial firms seeking to gain a foothold in the East African nation’s vibrant fintech ecosystem.
This comes amid Africa’s increasing transition from a traditional banking system to a digital model due to the pandemic-induced adoption of paperless transactions.
UMBA Inc, an American digital bank that operates a non-deposit lending company, acquired a majority stake in a Kenyan microfinance bank through its subsidiary UMBA Technology Ltd in July.
UMBA and other digital lenders are expected to increase financial inclusion in this market and deepen access to credit for many small businesses.
UMBA acquired a 66.06% stake in Daraja Microfinance Bank Ltd from July 1 following approval by the Central Bank of Kenya on May 23.
It is the second fintech firm to take a controlling stake in a Kenyan microfinance organization after Branch International Ltd acquired Century Microfinance Bank.
Branch International Holding Ltd is owned by Branch International Inc, a company incorporated in the state of Delaware, USA.
By acquiring a controlling stake in the microlenders, the digital lenders will overcome tough new rules aimed at curbing digital lenders seen as plunging borrowers into deep debt.
Many unemployed debtors and defaulting borrowers in Kenya have had to sell land, cars and sentimental items in recent years to pay off their debts.
In December, President Uhuru Kenyatta was seen nipping the growing micro-debt crisis in the bud by signing the Central Bank Amendment Bill 2021, which brought digital lenders under central bank control.
The bill gives the regulator the power to license digital lenders in the country and enforce fair and non-discriminatory practices in the credit market.
“This should give the central bank the power to regulate digital lenders. This is something that is long overdue that we have come all this way and we are looking forward to this becoming a law and we ourselves will fix this gap that has been here for quite some time,” the central bank governor Patrick Nyoroge told the media. last November.
According to the new regime, from September, lenders will have to apply for approval of interest rates on loans, disclose all loan conditions to borrowers, and they will also be prohibited from transferring information about loan defaulters to third parties.
The central bank has published the 2022 Digital Credit Providers Regulations, which require all digital lenders to apply for licenses to the banking regulator by September.
The central bank is expected to streamline the industry and protect Kenyans from predatory lenders.
The central bank said in a statement that UMBA’s investment will strengthen Daraja MFB’s business model, adding that it will particularly support Daraja MFB’s digitization as it strives to provide “anytime, anywhere” services to its customers.
“This is consistent with [the Central Bank of Kenya’s] a vision for a microfinance banking sector that works for Kenya and with Kenya,” it said.
Daraja, which was licensed in 2015 and whose main customers are SMEs, has a market share of less than 1% in Kenya’s microfinance banking sector.
The number of users of mobile digital lenders in Kenya, including Silicon Valley-backed Tala, rose to two million in 2019 from 200,000 in 2016, central bank data shows.
Kenya is a leader in both mobile money and digital lending in Africa, and more countries are just starting to adopt the technology.
The 2019 Digital Loans Survey found that 13.6% of Kenyans borrowed from a digital lender, citing convenience and ease of access.
When it comes to digital banking, most jurisdictions apply banking laws and regulations within their jurisdiction, regardless of the technology they employ.
As digital lenders grow in Africa, combined with mobile banking, it is expected that a larger portion of the unbanked population will be drawn into mainstream financial services.
According to Global Finance, 50% of Africa’s population is unbanked, which is 350 million people. Africa’s population is growing rapidly and will double in the next 30 years, adding another billion people.
Now, IBS Intelligence expects digital lending to redefine the dynamics of the credit market in Africa.
“With a lower cost base and improved reach, financial institutions — including banks, MFIs, non-banks and telcos — can simply do more with less. Digital lending lowers the costs of offering services and simplifies adaptation,” the analysis says. — bird stories agency
