Micro-finance embraces innovation to raise credit uptake among traders
Posted Thursday, June 28 2012 at 01:00
- Paddy Micro Investments has come up with the Pesa Pata initiative to net more customers as it widens its reach to serve the unbanked
When Joyce Wangui and her husband, Peter Nthiga, started a micro-finance business four years ago, they were afraid that they would be edged out of the market due to high competition.
Little did they know that their idea would blossom and become a popular institutions offering loans to low income earners.
Six months after registering Paddy Micro Investments Ltd in 2008, Ms Wangui, 34, says the number of clients rose from 200 to 100,008. And the growth has continued to be tremendous.
“It was a big risk because we began lending our money to people, some of whom we did not know well. We feared that some may default, but that never happened,” Ms Wangui told Money.
She got interested in the idea after observing that small business people were unable to replenish their stock due to lack of capital, and banks did not recognise them.
Previously, the couple operated a wholesale shop.
Paddy Micro Investments gives unsecured loans to business people. The loans are payable at an interest rate of six per cent, which is basically the micro-finance’s profit.
To qualify for a loan, one has to have an existing business in a stable location and get his/her fellow business people to act as guarantors.
Traders can borrow between Sh6,000 and Sh200,000. The loan repayment period is relatively short. In order to empower their customers, Paddy Micro Investments also offers training in business management and bookkeeping.
It takes 24 hours to get the loan, unlike in many organisations where it takes several days — a factor that has attracted many customers.
The staff examines the business structure and introduces traders to bookkeeping, after which the micro-finance funds them. The couple started the business with only one employee, but now has 600 members of staff.
In order to navigate the bumpy loans market, persistent marketing, patience, and quality service are the secret, says Ms Wangui, adding that the micro-finance has 78 branches in Rift Valley, Central, Nairobi, and Western provinces.
To compete favourably with tech-savvy products from big financial institutions, Paddy Micro Investments has introduced a unique product — Pesa Pata — which helps clients access quick loans from kiosks. This product targets the unbanked and low income earners.
The loan is payable in less than 30 days and Ms Wangui says the new service is popular.
Pesa Pata uses an agency model where kiosk owners serve as agents and a customer is given a Pesa Pata scratch card valued between Sh250 and Sh5,000. The customer loads the secret number on a mobile phone and the money is credited via M-Pesa.
Ms Wangui says the product, which is barely three months old, has attracted over 2,000 agents across the country who are, mostly shopkeepers, and the number is growing.
“At times, people need quick money but they are not able to go to a bank or micro-finance for a loan and I can say Pesa Pata is filling that gap,” Ms Wangui told the Money during the interview.
The customer pays the scratch card loan at an interest rate of between 5 per cent and 10 per cent which serves as the profit to the agent and the model is dependent on the level of trust between traders and their customers.
However like any other businesses, its has not been without challenges. When MPESA networks goes down, it often affects their business since Pesa pata transaction cannot go through.