Hire purchase business was once a popular mode of payment in the country, but not anymore.
By Bonface Otieno Kanyamwaya
Along Nairobi’s Tom Mboya Street, sales people employ all tricks in and out of the book in a bid to woo customers into their electronic shops.
Successful ones sweet-talk potential customers who end up either with a purchase or a promise to return for an item next time they are around those areas.
“This is a cash and carry shop but we sometimes have to negotiate prices,” says Willis Olago, a shop owner along the street. It is a picture replicated across the capital city and the country at large.
But a short distance from Olago’s shop is a well-stocked outlet with all manner of household goods. Yet few, if any, customers seem to be walking through its doors.
Has lost lustre
This is not surprising because it is an indication of how the hire purchase business, once a hugely popular mode of payment in Kenya, has lost its lustre. At its peak between the 1970’s and 1990s, hire purchase was a favourite mode of buying household goods, electronic assets like TVs, refrigerators, radios, utensils and furniture.
Demand and competition was so intense such that dealers employed various marketing strategies, the most popular being the Kenya Broadcasting Corporation radio programme, “Sanyo Juu Sanyo Tops” by veteran broadcaster Fred Obachi Machoka.
“The removal of foreign exchange controls opened the floodgates for electronic items coming into Kenya heralding a major challenge to the hire purchase industry,” saysErnest Wangai, the Chairman of Kenya Credit Traders (KTC), one of the hire purchase firms in the country.
Besides KTC, other household names in the hire purchase business include Africa Retail Traders (ART), indeed the oldest and Amedo Centres Kenya Limited, the franchise holder for Singer Sewing and Singer Knitting machine in Kenya.
KCT Chairman says scrapping of the requirement that one must get a licence from KBC to own a TV set or radio also changed the playing surface for hire purchase dealers overnight.
“Acquiring and, therefore, possession of, especially television sets and radios was no longer in the hands of select few,” says Wangai.
Ms June Gathoni, Chief Executive Office at Small& Medium Entrepreneurial Resource Centre, however, reads from a different script. “ The discipline of the hire purchase came as a result of increased access to financial services especially personal loans, from either financial institutions or savings and credit cooperatives societies (Saccos) to most Kenyan,” she says.
Gathoni opines that increased accessibility especially by teachers who formed the bulk of hire purchase clients, found it easier to take loans whose proceeds they could then use to purchase the items they needed.
“It gave them the flexibility of choosing the item, dealers and even time of acquiring it,” she added.
She said that the idea of repossessing the “hired” item in case of failure to repay for it also played a great role in the system’s decline.
Lack of indepence in the system in form of guarantors which banks and Saccos offer, saw a majority of the customers fall out with the former,” she says.
This is understandable. Besides the final cost of the item being far higher than its actual price, the hire purchase process is cumbersome since it needs things like guarantors and letters from employers.
For instance, if one pays via cash, a 32-inch Samsung good quality television set costs about Ksh. 42,000. Acquiring it through ordinary hire purchase, one has to pay a deposit of Ksh. 6, 490 and subsequent monthly instalments of Ksh. 2,920, for a period spread over 20 months.
By the end of the repayment period, a hirer with a guarantor, as it is the requirement with most hire purchase dealers, would have paid Ksh. 58,000 as opposed to Ksh. 42,000 if he was to buy on cash.
Check off system
If a customer is employed especially as a civil servant, he or she can opt for the check-off hire purchase system where he or she has to, among others, provide a letter of approval from the employer.
Alternatively, if a customer is employed and is a member of a Sacco, he or she can take a loan to buy the item while repaying the loan. As a business model, hire purchase system has inherent challenges.
Mr Princewill Omorogiuwa, Chief Executive Officer, Simon Page College of Marketing, says weak or lack of effective marketing of hire purchase as a viable and available mode of payment has hindered the system’s visibility in the market.
“The success of credit depends on how effective debt collection is, besides the commission paid to those involved, which is a challenge to the system,” he says.
Even operators admit it’s a challenge. “You have to perfect the art of collecting monthly instalments. Otherwise; you will not survive in this field,” sayWangai.
Unknown to many Kenyans, unlike other dealers who value the high-end market, hire purchase dealers try as much as they can to avoid it. “They live in secluded areas thus making it difficult to repossess the items when they default on payments,” says the KTC boss.
Another challenge has been defaulting when customers, especially civil servants, have committed much of their salaries to repaying other loans.