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Leading a Digital Banking Revolution

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One of the elements that boost the growth of a business, whether it is a corporate or a Small and Medium Enterprise (SMEs), is credit.

Recognising that it is a challenge for most SME’s to access this facility, the government passed an Amendment to the Banking Act of 2015, requiring that financial institutions such as commercial banks cap their lending rate, so as to encourage more credit access for investment into the sector. Back then, the lending rate was four percentage points above the Central Bank Rate (CBR) of ten percent.

 

The consequence of the legislation is that it has had an opposite effect. Banks feared lending to SME’s because of the high risk that they pose. Three years later, this scenario remains unchanged. For example, in a 2019 sovereign note by global ratings agency, for this year, high interest rates charged to SME’s have lessened the rate at which banks can lend to the latter. But their inhibition gave way to other lending institutions, such as mobile lending applications (apps). 

 

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There is currently an attempt by Treasury to remove the rate cap requirement in the Banking Act which hinders commercial banks from lending to SME’s. The issue is due for debate by Parliament. While there are other credit revenues for SME’s, such as the stock exchange, mobile phones have become another avenue through their applications.

 

For instance, according to a 2019 report by Nigerian e-commerce marketplace, Jumuia, Kenya has given out over 300 loans through mobile loan apps. In as much as it easy to download a non-banking app and take out a loan through it for reasons that vary from either running their enterprises or for something urgent, paying back that loan is not easy.

 

The 2019 report titled “Inclusive Finance?” states that in the last three years, loans from digital applications have risen by 8.4 percent, up from 0.6 percent. The rate of default is also higher for a digital loan, as compared to one than is taken from a commercial bank.

 

But why the preference for non-banking apps such as Tala and Branch, as compared to banking apps such as Co-op Bank’s M-Co-op? Research that was last year published by the Financial Deepening Sector (FSD) reveals that this is for among other reasons, that such digital lending apps are unregulated and do not need to adhere to strict requirements that are required by the banking apps, such as on interest rates. 

 

But non-banking apps have been accused by the Central Bank of Kenya (CBK), of either being fraudulent or not respecting their customer’s data.

 

It is against this context that Mr Lucas Notopolous started Zenka Finance to target a clientele that comprised of underserved people. That is, people who among many reason, lack collateral requisite to get a loan in a commercial bank. Mr Notopolous chose a man with the right credentials and experience to steer his Kenyan team.

 

On September 6th, I meet Mr Robert Masinde, the Chief Executive Officer (CEO) of Zenka Finance in Kenya at the startup’s office at the Mirage in Westlands. He has been a banker for the last 15 years, part of the time including digital banking, and has used that experience to lead the Zenka Finance team for the last eight months since the firm started in December 2018.

 

“ I used to be the Corporate Bank Manager of Stanbic Bank. It was at that time that M-Pesa started when in 20007. And, so we looked at that as an opportunity in which to reach more clients than was possible with our limited branch network. So Stanbic Bank became the first digital bank to integrate digitally with M-Pesa in 2008,” says Mr Masinde during the interview that was held on September 6th 2019 at the Mirage in the upmarket region of Westlands in Nairobi.

 

From Kenya, Mr Masinde went to work at the headquarters of Standard Bank in South Africa between 2011 and 2013.

 

M-Pesa was created in 2007 to enable those in poverty to be able to use it for their mobile banking and payments. Zenka Finance, like other digital lenders, has been able to use the M-Pesa concept to not just provide mobile banking but is also targeting the same target market as M-Pesa, those who are in micro-enterprises, such as mama mboga, people who need loans to meet their day-to-day needs, hawkers as well as the tech-savvy generation.

 

Mr Masinde speaks softly but politely with an intricate detail of how the banking industry operates. He does not make it obvious, though, going over details carefully so that no point is not missed. 

 

“ Zenka Finance is providing an option that traditional banks do not. For instance, the latter requires for people to have securities to take a loan. We make it collateral free. Our entire proposition is based on information like the credit history of those who want to take out loans,  what the person earns, what they do, their age. This is all fed into the appropriate technology that computes a score,” he says.

 

Ms Masinde says that Zenka Finance is trying to enforce clarity and transparency on the prices of mobile lending apps. He says that the startup has also been able to distinguish itself from competitors by focusing on product innovation.

 

“ We are the first to offer loans for free. We are also the first to introduce an Artificial Intelligence (AI) chatbot for customer service that can adequately respond to customer queries. We also charge a commission fee of between 0 to 20 percent,” he says.

 

Digital lending apps such as Zenka Finance have taken off, at a time when experts have attributed the neglect that the banking industry has towards a population that is unable to meet certain banking requirements that have been set by regulators such as the Central Bank of Kenya (CBK).

 

Apart from being the CEO of Zenka Finance, also doubles up as the Chairman of the Digital Lenders Association of Kenya (DLAK). It was registered this May year and has 12 members, though they have received applications from 50 other members, says Mr Masinde. 

 

“There is some level of agreement to work together towards regulation. Another aim is to promote financial literacy and awareness to best address the concerns that are coming up,” he says.

 

“Realising that no one single entity can address the problems of consumers, DLAC has formed a partnership together with other parties, such as members of the Kenya Private Sector Alliance (Kepsa), World Bank as well as Treasury,” he says.

 

He says that DLAKC has other objectives, such as being able to promote financial literacy and awareness to best address concerns that are coming up,” he says.

 

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The need for consumer protection for DLAK is even more important for lenders more than the borrowers, as the former has more vested interests.

 

Mr Masinde is not keen to reveal the details of how much capital was invested into the business. But he says that startup that the offices in Eastern African countries such as Kenya, Uganda, Tanzania, Rwanda as well as Ghana. He says that the company’s investors are based in Europe, with headquarters in Warsaw in Poland and Latvia.

 

One of the challenges that Zenka Finance faces is the access to market data.

 

“ We do not have access to market data. So, we have to share data,” says Ms Masinde.

 

Another challenge is that of SIM card or identity fraud. There are many people using different SIM cards to take out loans. Mr Masinde says that Zenka Finance is working with telecommunication companies to verify their identification.

 

The hope for Zenka Finance is to progress from its clientele of micro-enterprises to those people who are earning salaries that are as high as Kshs 100,000.

 

One of the milestones of Zenka Finance is that it has had 41 employees since it started eight months ago.

 

“ It has also been able to reach about 800, 000 registered people, whom it considers to be “underserved” within that time,” it states. In the process, the startup has this year won the award for the 2019 Financial Inclusion Awards (Fini) in the “Most Prefferred Non-Banking Loan” category.

 

Mr Masinde reveals that he has 15 years worth of banking experience. He worked at the New York based Citi Bank between 1997 and 2004. He then moved on to Stanbic bank where he worked for the next nine years from 2004. 

 

Here, he worked at the Head Office of Standard Bank in South Africa, between 2011 and 2013. Mr Masinde also holds a Bachelor of Commerce degree (Finance option) from the University of Nairobi. Furthermore, he holds a Master of Business Administration (MBA) from the England-based, University of Oxford’s Said Business School.

In the process, Zenka Finance has been able to attract accolades, including winning the 2019 Financial Inclusion Awards (Fini), in the “Most Preferred Non-Banking Loan” category. The firm currently has about 41 employees.

And just like other digital lenders, using the M-Pesa concept, Zenka Finance has not only been able to provide mobile banking solutionsv, but also supported micro-enterprises, such as vegetable vendors, among others, who need loans to meet their day-to-day needs.

“Zenka Finance is providing an option that traditional banks do not offer, for instance, traditional banks require people to have securities to take out a loan. We make it collateral free. Our entire proposition is based on information like the credit history of those who want to take loans, what the person earns, what they do, their age, (among other basics). This is all fed into the appropriate technology that computes a score,” he says.

Zenka Finance, Masinde says, is trying to enforce clarity and transparency on the prices of mobile lending apps. Focusing on product innovation has distinguished the company from competitors.

“We are the first to offer loans for free. We are also the first to introduce an Artificial Intelligence (AI) chatbot fro customer service that can adequately respond to customer queries. We charge a commission fee of between 15 to 20 percent,” he says.

Digital lending apps such as Zenka Finance have taken off at a time when experts are pointing an accusing finger at the banking industry for neglecting people who are unable to meet certain banking requirements set up by regulators such as Central Bank of Kenya (CBK).

Apart from the CEO of Zenka Finance, Masinde also doubles up as the Chairman of the Digital Lenders Association of Kenya (DLAK).

“There is some level of agreement to work together towards regulation. Another aim is to promote financial literacy and awareness to best address the concerns that are coming up,” he says.

“Realising that no single entity can address the problems of consumers, DLAK, has formed a partnership together with other parties, such as members of the Kenya Private Sector Alliance (Kepsa), World Bank as well as Treasury.” He says that DLAK has other objectives, such as being able to promote financial literacy and awareness to best address concerns that are best coming up,” he says.

For Zenka Finance, he says, the greatest challenge remains access to market data, which has forced the firm to share market data.

Another challenge is SIM card or identity fraud. There are many people using different SIM cards to  take out loans. However, the firm is working with telecommunication companies to verify user identification.

The hope for Zenka Finance is to progress from its clientele of micro-enterprises to people with earnings of higher than Kshs 100,000.

Edited by Ben Odour.

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