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Secrets of surviving in the loan services industry

By Gardy Chacha | April 30th 2019

Mid-level lenders offering credit facilities currently face stiff competition from various quarters. Before starting Jijenge Credit Ltd in 2014, Peter Macharia had been a banker for 25 years. At National Bank of Kenya he rose through the ranks — from a bank teller to a regional manager in charge of Mt Kenya region. He talked to Financial Standard about the challenges he faced venturing into credit services and what the future holds for the industry.

What led to the business model when Jijenge started off?

The idea behind Jijenge was to provide credit facilities to people in business. When we rolled out, our clients ranged from vegetable vendors to owners of beauty parlors and boutiques. We were interested in the customer who makes money on a daily basis. We were charging an interest of 30 per cent per month. That has since reduced to 5.9 per cent.

From 30 per cent to 5.9 per cent is such a drastic reduction. What influenced it?

The loan facilities we were offering at the time were unsecured. This was way to mitigate default rates going up. Gradually, as the business grew, we had to rethink the model. We moved from unsecured to secured loans essentially. With secured loans, we no longer needed to maintain a high interest rate. Because while with unsecured loans the profit margins are high, the risks involved are high too. With secured loans, the profit margin is small but the risk is almost fully eliminated.

Are you sure it had nothing to do with remaining competitive?

I am absolutely sure of that. Of course, we have to compete and attract clients and that means giving loan facilities that won’t be burdensome to our clients.

Who are your main competitors?

Banks, saccos and mobile money lenders.

How have you handled the completion?

We have made sure that we have an advantage over all of them. Banks have lower interest rates but their turnaround time is not favourable to clients. Unlike banks, we have reduced the time it takes to process a loan facility to just one hour. A customer can literally come in at 9am and if they have all the necessary documents by 10am, they will be having the money in their accounts. Saccos on the other hand only lend to people who have saved up with them. With us it is not a requirement that you must have saved money with us. This has worked to our advantage. As for mobile money loans, regulations have capped the amount that can be disbursed to Sh70,000. For us that is the least we can disburse. So when clients want bigger sums of cash they are better of coming to us than going for mobile loans.

How are you able to give loans within an hour considering all the paperwork involved?

What we did was to make sure third-party service providers that we work with such as insurance companies are a phone call away. If we need to certify papers with National Transport and Safety Authority (NTSA) we have a direct link to the agency. And we have property valuers on call who will avail themselves at a minutes notice. We have also created an online platform through which clients can apply for a loan and can talk to our staff. This also quickens the process.

Have you had to develop new products based on demand?

The art of growing – and surviving – in the world of business is to evolve with the times. That means identifying new opportunities and taking them up. One interesting product we have developed in the recent months is one for businesses importing goods. Through the service, called container management solution, we have partnered with clearing agents at ports to release a client’s goods and allow them to pay when they have raised the money. The product of course has security features.

What’s your default rate?

We are at less than five per cent default rate. We are doing very well.

Do you think technology will eventually kill off the loan industry?

Technology will force us to adapt to better ways of doing business but I can tell you with certainty that businesses will be giving loans as long as the human race exists because loans are as old as human history.

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