Banks yet to give health sector businesses the right products

Booming and healthy business: Averagely, each clinic pays Sh110,000 in bank charges annually. PHOTO | FILE 

By EDWARD OMETE

The health sector is projected to surpass banking and will be valued at about three times bigger. Perhaps informed by this the banks are starting to work on how they can get a piece of this market. This more so as the traditional banking model faces an onslaught from telecoms companies that now offer financial services.

Data from the Central Bank of Kenya’s indicate an odd 40-something banks, several microfinance banks and in between a few well capitated saccos that can compete in this battle field.

In the past banks’ engagement in health care has been through loan products targeting health workers and entrepreneurs. For instance Commercial Bank of Africa’s Tiba Finance for financing medical products for hospitals, medical clinics and physician practices.

NIC Bank has an asset financing product similar to Chase Bank’s. Quite a few have now ventured into the tricky world of asset leasing.

For the moment, these products are rudimentary because they do not address the entire needs of the entrepreneur in health enterprise. Most focus on a particular aspect of the medical practice missing other critical component.

The targeting of the health industry should be informed by the guaranteed rise in health care expenditure. Arguably it is one of the few industries without a recession. You must spend on health care, whether it is good times or bad.

Secondly, as the medical conditions become more complicated and chronic so does the per capita expenditure. A rise in wealth or income and life expectancy is also accompanied by increased health costs. One has to compare the health expenditure across the age brackets to see this assessment.

My analysis of financial statements of four small clinics reveals the reason for the scramble. On average each clinic paid Sh110,000 in bank charges annually. In the first three years’ they took five loans with a bank commission of Sh1 million.

Branch networks

Now, there are estimated to be about 10,000 medical clinics, over 1,500 medical centres and about 1,000 hospitals. The general rule is the more complex the facility, the more the charges.

Perhaps, this is the reason banks have been eyeing the sector and a shift is now appearing as they also venturing into health care.

However, these traditional revenue streams could reduce as rivals like saccos catch up in terms of strategy, branch networks and capital bases.

Previously banks had deals as intermediaries where they got money from donors, development agencies or vendors of medical equipment for onward lending to medics for equipment purchase. Such avenues are now dwindling because a few of these entities have opted to deal directly with the doctors.

A good example is a proposed deal between an international medical credit fund with the doctors’ sacco. Previously it distributed its loan products through banks which were more expensive by a 5-10 percentage point. This deal will definitely reduce bank loans taken by health entrepreneurs for medical equipment.

As the medics saccos gain more financial muscle and increase their branch networks, it is likely that health workers will focus there too. Financial institutions, therefore, have to develop tailored packages and engage with medics as competition rises.