Telcos, banks give shylocks a run for their money

ursday, October 8, 2015

Some of the services that are gradually edging shylocks out of the market include Safaricom’s M-Shwari, KCB M-Pesa and Equity Bank's Equitel. PHOTO | DENISH OCHIENG | NATION MEDIA GROUP 

In Summary

• With these services, loans are just a click away, redefining the terms quick money and financial convenience.
• They just look at your saving habits and credit record and if they are impressive, they immediately open the loan taps.
• Shylocks admit that the current trend puts them in a difficult situation.

By WINFRED KURIA
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About half a decade ago, if you wanted a quick loan, you went to shylocks. 

Many preferred these informal providers of credit because all you needed to give was some asset in form of collateral and in an instant you have your cash.

Another thing that attracted borrowers to these informal lenders, who invariably operate in the backstreet, is that you got the money quickly to meet your pressing need.

This was a far much easier route than borrowing from banks whose procedures were stringent. Never mind that the shylocks’ interests’ rates were comparatively sky-high while their legality remained a hotly divisive subject among financial experts.

MOBILE LOANS

However in the recent past, things have dramatically changed with the advent of the mobile money services provided by telcos. With these services, loans are just a click away, redefining the terms quick money and financial convenience.

What is even more attractive is that you do not need any collateral to obtain the credit. They just look at your saving habits and credit record and if they are impressive, they immediately open the loan taps.

M-SHWARI LOANS

Some of the services that are gradually edging shylocks out of the market include Safaricom’s M-Shwari, KCB M-Pesa and Equitel.

With M-shwari, you just need to click a button and the money is wired instantly into your mobile account so long as you meet the requirements. The amount you can borrow depends on your savings. Your borrowing limit is also increased when you repay your loan constantly on time. A one-time fee of 7.5 per cent is levied for each loan.

In order to qualify for a loan all you need is to be an M-Pesa subscriber for six months, save on M-Shwari and actively use other Safaricom services such as voice, data and M-Pesa

The loan interest is based on the duration taken to repay it, with the shortest period being 30 days.

KCB M-PESA AND EQUITEL

Banks too have devised ways to regain the ground they have lost to telcos, especially to Safaricom, by coming up with easy-to-access loans.

Kenya Commercial Bank, for instance, has partnered with Safaricom to launch KCB M-Pesa. On its part, Equity Bank has introduced Equitel, where the credit history of the borrowers determine whether or not they get the loan. Aside from this, all that individual needs is an equitell SIM card to access the loans.

To obtain credit through KCB M-Pesa, a borrower just needs to dial a code and go through simple steps. The loans are priced based on the repayment period. The highest interest rate is 12 per cent for a credit payable in 180 days. For a 30-day credit, you pay 4 per cent while a 90-day loan attracts 9 per cent interest.

For KCB M-Pesa, you don’t have to have an account with the bank to use the service; all you need is an M-Pesa account.

You can borrow without having made any savings.  The Loan limits are between Sh100 to Sh500,000 with a top up option.

EASY LOANS

Banks have also been increasingly simplifying the procedures for applying for loans in addition to finding ways to get rid of the lengthy paper-work processes.

“Banks are trying to relax rules in order to meet the needs of the informal market by lowering loaning standards,” says Said Habil Olaka, CEO, Kenya Bankers Association

“The untapped market of people who once depended on shylocks have today turned to be a money-making segment for the financial institutions.”

Shylocks admit that the current trend puts them in a difficult situation.

END OF SHYLOCKS

A shylock operating on Jevanjee Street in Nairobi says his business is feeling the heat as more big corporates come up with micro-credit products and as banks increasingly become lenient to applicants.

“The rate at which banks are launching these micro-credit platforms will force us out of business” he said, “when banks lowered the amount they lend borrowers, we were left with clients needing small amounts of cash.”

Even in terms of ease of getting the loan, the ground is dramatically shifting beneath them.

Borrowers no longer have to go to banking halls for the loans; all they need is to tap their phone and get an instant loan with very small interests.