In an attempt to enable every Kenyan, wherever he or she is, to join a Sacco, save and apply for a loan from a mobile phone, one entrepreneur has set up a digital savings and credit co-operative.
The person behind the company, Digital Media Sacco (DMS), is Onfon Group co-founder and chief executive Dennis Makori, 35. Onfon, a telecoms services firm, has annual revenues of just over half a billion shillings.
Mr Makori got the idea for the Sacco while at a conference in Spain, and in March this year, registered DMS.
One of the membership requirements for many Saccos in Kenya is for one to be a part of a profession or company, but DMS, in looking to remove such barriers, is open to anyone with a registered SIM card and ID. Registration, savings, and loan applications and disbursements are done through mobile money platforms.
“It is an idea that I think is going to revolutionise the lives of our poor, young and unbanked men and women,” Makori said
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“DMS is going to do to the Sacco movement what Equity did to the banking sector.”
The Sacco initially started with staff members’ monthly contributions, but has today grown to 2,400 members, Makori said. DMS plans to register one million members by December 2016, added its general manager, Charles Ongeso.
“The Sacco aims to facilitate savings and affordable credit in an efficient and transparent manner to promote members’ welfare,” Mr Ongeso said.
The Sacco is a non-deposit-taking microfinance and is registered with the Ministry of Industrialization and Enterprise Development.
It operates on a USSD platform, where a user sends a text to an application programme. Soon, Ongeso said, the Sacco will launch an app for smartphone users.
To join, one dials *847# and follows the prompts to sign up. The requirements include entering your full name, ID number, postal address and how much you will contribute per month. Once you agree to the terms and conditions, you become a member.
There is, however, a registration fee of Sh200, with all transactions done through an M-Pesa Paybill. DMS is currently in talks with Airtel and Orange mobile service providers to roll out the service on their networks.
According to Makori, the Sacco is the first of its kind in Africa, with the model finding success in Spain, India, Singapore and Bangladesh.
“You can save or get a loan any time over the phone wherever you are, without physically coming to an office,” said Ongeso.
To boost the security of its system, DMS has invested in IT, and has its server hosted by New York Stock Exchange-listed firm Rackspace.
“This ensures our system is not vulnerable to cybercrime, enhancing the security of our members’ savings,” said Ongeso.
DMS has had its fair share of challenges, however, including convincing people to become members.
“We had to open a physical office where interested clients would come, and still do, to ensure we are not a non-existent Sacco looking to con people,” said Ongeso, speaking at the firm’s office near Nairobi’s City Cabanas.
Members save a minimum of Sh500 a month, with these savings used to acquire loans.
If a member wants to leave the Sacco, the deposits will be refunded after a three-month notice period, DMS said. However, the money is only refundable if the member has no loans and has not guaranteed someone.
The deposits will attract interest if the “Sacco makes good profits”, Ongeso added.
Further, upon registration, members are required to buy Sacco shares worth Sh100, with this share capital attracting dividends once the Sacco turns a profit. Share capital is not refundable should one exit the Sacco, but it can be transferred to another member.
DMS offers development and emergency loans.
An emergency loan, which the Sacco says is processed within an hour, is 80 per cent of a member’s deposits and is offered at an interest rate of 5 per cent of the amount borrowed. Repayment has to be done within a month, and no guarantors are required.
A member qualifies for a development loan after six months, with the amount disbursed being three times one’s savings. The interest rate for this facility is 1.25 per cent per month on a reducing balance, with a maximum repayment period of 48 months. It needs a minimum of five guarantors.
The company plans to roll out its model across East and Central Africa in two years, after partnering with mobile firms in these regions.
It also plans to register with the Sacco Societies Regulatory Authority (Sasra) to offer services similar to those in commercial banks.