Welcome to Kenya
If you invest on a global platform like Mintos, your money can fund loans from all around the world. Among the wide range of international lending companies issuing loans on our platform, three of these are based in Kenya: Zenka, Watu Credit, and Finclusion. In this article, we explore how alternative banking and lending solutions have helped to improve financial freedom in Kenya.
Kenya is one of the most developed countries in Sub-Saharan Africa, with employment rates on par with some of the wealthier countries in the continent.
According to a 2019 survey carried out by the Central Bank of Kenya, only 30% of citizens hold a traditional bank account. When it comes to loans, an average monthly wage of $125 means that not many citizens can afford to make a larger purchase like a personal vehicle without a loan. Unfortunately, Kenyan banks have quite strict policies about lending money which can present an obstacle for those on lower incomes, particularly if they don’t own property that can be used as collateral.
With so few Kenyans having access to a traditional bank accounts, getting a loan presents an even greater challenge. As a result, many turn to alternative lending companies offering personal, car and short-term loans in cash or by mobile payment.
M-Pesa: mobile payments for financial inclusion
Even though the majority of Kenyans don’t actually own a bank account, the Central Bank of Kenya’s survey found that 89.2% of people still had access to financial services and products that allowed them to make and receive payments digitally. How is it possible? It’s all thanks to a groundbreaking technological solution that allows people to send and receive money using their mobile phone, M-Pesa.
While countries with long-established banking systems have been transitioning from in-branch banking to digital platforms slowly over time, Kenyan citizens have been quick to harness the convenience of this technology-driven banking solutions, with the highest percentage of mobile money service users in the world.
M-Pesa is the world’s first mobile payment system for sending and receiving money. Before it arrived on the scene in 2007, only 1 in 3 Kenyans had access to financial services which meant handling their transactions in cash for lack of an accessible alternative. Safaricom, the company that founded M-Pesa identified this issue, and turned into a great opportunity to revolutionize the way people in Africa manage their finances, simply by introducing a SIM card that works with any mobile or smartphone thats let users exchange money by SMS.
M-Pesa marked a huge turnaround in Kenya’s bid to ensure the financial inclusion of its citizens, resulting in a 62% increase in just over a decade. With the M-Pesa mobile payments system and a number of alternative lenders like Watu Credit, Finclusion and Zenka, ordinary Kenyan citizens are able to borrow and repay loans simply by SMS text message, secured with a PIN code.
Now that we know it is possible to get a loan in Kenya without a bank account, let’s take a closer look at some common uses for loans in the country, or in other words… where money you might invest could goes.
A booming vehicle loan industry
One of the most popular uses for personal loans in Kenya is to address transportation needs with small vehicles like motorbikes. Bikes and motorcycles are popular options because of their convenience and relatively low price and running costs compared to cars. In the past, motorbikes were typically associated with low-income workers, but more recently, one Kenyan lending company which specializes in issuing vehicle loans on Mintos, Watu Credit, noted that motorcycles were becoming increasingly popular with wealthier citizens as a way of gliding between the chaos of traffic in major cities. Accordingly, demand for vehicle loans increased as a reflection of this new consumer demographic.
As well as motorcycles, there is a high demand for loans to maintain and develop small businesses like taxi services that need cars or grocery kiosks that need stock to sell. Not only that, but also there even small business owners who take intra-day loans to fund their daily operations and pay the loan back in the evening.
A culture of paying back loans
It goes without saying that responsible borrowers are more likely to pay loans back in time, but there are three important factors that support accountability among Kenyan borrowers in particular:
- Higher down payments — Loans issued in Kenya are known to have relatively high down payments (25% or higher), compared to loans in Europe (as low as 10%, or 0% on special offers).
- Social pressure — A culture of Savings and Credit Cooperative Societies (SACCOsS) across Kenya and other African countries play a significant social role, because not paying back a loan may harm the borrower’s reputation and affect their ability to get loans in future and encouraging borrowers to pay their way out of their debt.
- Purposeful borrowing — More often than not, Kenyans take out loans for immediate or justifiable reoccurring needs like transportation and small business maintenance. Typically, loans are used to support the borrower’s livelihood, rather than as a form of disposable income.
Alternative borrowing and payments works for Kenya
By not being reliant on the established banking systems that form a central part of life in other countries, Kenya is proof that what works for the citizens of one society, won’t necessarily work in another. With 24% of the Kenya’s GDP coming from agriculture, accessible and low-maintenance borrowing and payment solutions helps to bridge the financial inclusion gap between those living in cities and those in rural areas. These solutions ultimately enable everyone to get access to loans and payment services when they need them no matter where they live, and helps grow the economy day by day.
An older version of this article first appeared on Mintos.com in 2019.
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