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The lowdown on investing in the matatu business

WORK LIFE
By Trevor Lamenya | May 24th 2017 | 2 min read
By Trevor Lamenya | May 24th 2017
WORK LIFE

The Passenger Service Vehicle (PSV) sector has always been a lucrative industry to invest in. It is estimated that there are more than half a million PSV matatus that ply our roads every day.

And despite the introduction of a commuter rail service, the imminent standard gauge railway, and a proposed light rail rapid transport network, matatus are still expected to provide ‘last mile’ connectivity, meaning the industry will remain attractive. So, what do you need to know about it?

1. Type of PSV vehicle – and what you can expect to make in a day

The vehicle you choose will depend on your budget and route dynamics. If you want to invest in a 14-18 seater, the grey market (second-hand imports) offers the best options, with prices ranging between Sh1.7 million and Sh2.5 million.

Those willing to ply short-haul routes – that is, within residential areas – a 14-seater, 2.5-litre turbo-diesel vehicle with an average fuel consumption of 10 kilometres per litre would bring in Sh2,500 per day, after fuel and crew expenses. This comes to a total of Sh15,000 for a six-day week, or Sh60,000 a month. You’ll make a return on your investment in roughly 24 months.

For bigger PSV vehicles (29-37 seater) the purchase price is bit steep (Sh4 million to Sh5 million), hence, they’re best bought brand new. The advantages of buying a new vehicle are a guaranteed mileage warranty, affordable service package and a tropicalised vehicle that’s able to handle our roads. On average, the vehicle will bring in Sh10,000 a day, or Sh240,000 per month, with a return on investment achieved two years in.

2. Financing

You’ll need to join a PSV Sacco, which means you can take advantage of negotiated interest rate loans to purchase your vehicle. If you would like to finance it on your own by raising the 10 per cent deposit, then approach leading asset finance institutions like NIC Bank and KCB to get the remaining 90 per cent. They can give you flexible terms and if you repay consistently, your credit score will go up and you can apply for other loan facilities.

3. Licensing and regulatory matters

To get your PSV on the road, it will first have to be inspected by the National Transport and Safety Authority (NTSA), which will ascertain its road worthiness and check for equipment like fire extinguishers, speed governors and seatbelts. NTSA also checks the validity of the PSV insurance, Sacco membership and if the driver and crew have the required documentation (PSV and valid driver’s licences, plus a certificate of good conduct from the Directorate of Criminal Investigations.

4. Informal fees

Be prepared for the informal costs of owning a PSV, which could run into daily fees of Sh200 for a 14-seater, and Sh500 for larger vehicles, depending on the route you choose for your matatu and the Sacco it will belong to.

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