A boom in financial technology in Kenya has seen a wave of start-ups offering mobile money loans.
Now, that sector – largely unregulated – is in a crisis and blamed for trapping thousands in debt owing to predatory lending habits. This is at a time when the savings culture among the youth is low and most have even shunned traditional savings institutions such as Saccos.
Delila Kidanu alongside his business partner Alexis Roman took up the challenge and founded Koa App, a digital savings companion targeting the youth. Their savings can earn returns.
The app is one of the few mobile money savings and investment platforms and with as little as Sh100, Kenyans can access fund managers for a 10 percent annual return.
Enterprise interviewed Ms Kidanu
You specifically highlight that you are targeting the youth, why?
We decided to start by targeting the youth because this demographic is the most tech-savvy and accustomed to digital experiences. The youth population is ever-growing and when conducting our research, we identified a lack of financial education. We want to work towards upskilling this generation with good financial literacy.
We are not only focused on this demographic, the opportunity to improve one’s financial situation is relevant across multiple ages, and we see this as our starting point.
Koa is a product for everyone who wants to save and earn on their savings. The goal is for each user that begins their savings journey with Koa to build beneficial habits for a successful financial future.
We are actively working with organisations to upskill their communities and employees with financial literacy, this benefits all generations, not just the youth.
What trends amongst the older people and the youths did you learn during your survey?
When we were starting the Koa journey, we embarked on speaking to potential customers. This was pre-Covid 19 so we were able to speak to a lot of people, the findings we gained helped shape the product we have today. We learned that:
·Saving is a big part of society and people trust the community around them the most when it comes to money and finances.
·It’s easier to get a loan than it is to invest in a formal financial institution.
·Financial literacy is not taught in formal education and people are not well versed in the options they have to build wealth.
·Trust for financial institutions is lacking, with the prevalence of get-rich-quick schemes and predatory products people have become skeptical of institutions.
·There is a lack of clarity on existing products within the market.
What’s your advice to someone yet to start saving?
Saving is a journey. If you were to plant potatoes you wouldn’t dig up the soil every day to see the progress. Just like saving, you need to water by depositing and allow the financial instruments to do the work. When it comes to savings you need to be consistent in depositing and have the discipline and patience.
Describe the journey of founding Koa
My co-founder and I met during our previous jobs investing in startups. During this time, we found a common interest in the financial technology space. When it comes to savings, I have a more informal background, watching my family run the equivalent of chamas in Ethiopia, we call them Equb.
Watching how manual and tedious this process is led me to think deeper into why people prefer to save in these groups rather than in formal institutions. Alexis on the other hand comes from a more formal financial background having worked in a financial consultancy previously.
Bringing these two worlds together, we learnt a lot about the market and gaps that existed and the idea of Koa was born. We want to give individuals the security, support, and camaraderie you would get from a chama.
What challenges did you face coming up with this project?
When we first started exploring the idea to start Koa we pushed ourselves to really understand and dig deeper into identifying the right pain points for the customers we were looking to onboard. A big challenge for us was to identify the pain points or customers but also the pain points of our partners on the financial institution’s side. Koa aims to bridge the gap between these two players.
How are you going to ensure a disciplined saving culture? That people don’t withdraw whenever a need arises?
When we first started Koa, we studied the savings culture, it’s true, people tend to pull out money when it accumulates and spend it on something unintended. When we built the application we used elements of behavioural economics that are enabling us to help users build positive savings behaviours and positively reinforce depositing rather than withdrawing. The Koa App is goal-based savings, so any time you attempt to withdraw you are reminded of the intended use of the funds which we have seen acts as a deterrent to most people. We are actively supplementing this through our financial literacy sessions.
Digital lending is on the rise. Does your application offer mobile loans?
At the moment we do not offer this feature, but we are looking to build this in the near future. As an organisation, we want to promote safe financial products and good financial health. We believe that savings and loans go hand in hand when they are honest and available to support individuals build future wealth.
Banks and Saccos are traditionally the trusted saving institutions. How do you convince people that your app is the way to go?
When it comes to individuals’ hard-earned money we take this very seriously. Koa has taken big steps to ensure the security of our users’ funds. We have embedded security features within the app and partnered with trusted institutions with longevity in the market, for example, our partnership with Britam. We have also engaged the regulator, Capital Markets Authority (CMA), and have been admitted into the CMA Sandbox to run our innovation. We are early on our journey but feel we have made big strides to ensure users feel safe when using Koa.
What is your end goal?
The goal for Koa is to democratise access to wealth-generating products by making financial products easily accessible. We are working towards this to ensure that customers who were unable to access such products will now do so, and build financial health. There were many barriers we identified and our belief all through has been that customers who can deposit Sh100 should be able to earn the same returns as customers who are able to deposit Sh100,000.
Did you find any biases as a startup setting up a business?
Starting out as a new player in a large and traditional industry comes with a lot of challenges. However, what we saw was massive interest from the incumbents in the space to work towards improving the experience for customers and improve their processes to better the industry as a whole. The consensus is that there is an opportunity and both industry players and customers have identified it.
Your partnership with Britam is the first one of this kind in Kenya, What should we expect as an outcome from this partnership?
This Digital Independent Financial Advisor partnership is the first step in digitising access to financial institutions. From our partnership with Britam, every individual looking to begin saving and investing will be able to do so in less than two minutes. Working with Britam has allowed Koa to offer users the opportunity to invest in the money market fund with a return of up to ten percent per annum.