Banks ‘poaching’ on microfinanciers’ turf as battle for small savers intensifies

A muted but nevertheless intense struggle is going on between giant banks and microfinance institutions over the low-profile credit market represented by the millions of low-income Kenyans who have jointly pooled savings amounting to an estimated Sh10 billion.

There are in the country an estimated 100,000 groups of small business operators, jua kali artisans, local women and youth groups who have painstakingly organised themselves and saved cash over the years.

Traditionally, these groups have had little to do with banks, relying on trust and unwritten codes to pool cash and offer members an occasional loan.

Microfinance institutions have nurtured many of these groups over the past two decades and have come to believe that this segment of the credit market is reserved for them.

But lately, major commercial banks have been wooing the best performers in this sector with offers of credit at easier, longer and more consumer-friendly terms.

“Banks are able to identify the very best clients of the MFIs, whom they then proceed to poach,” said the chief executive of the Association of Microfinance Institutions, Benjamin Nkungi.

MFIs are understandably unhappy.

“The banks have been taking some of our clients mainly because they are big and can afford to offer loans without security” said Winfred Manda, an accountant with Value Plus Ltd, a sister company of Crossbridge Credit Ltd.

She says that, while the banks have been progressively relaxing the tough lending conditions they traditionally adopted, MFIs continue to be tight with their cash and ultra-careful about lending to legions of defaulters.

This caution is understandable; for instance, defaulters forced Crossbridge to stop issuing personal loans in 2006. Ms Manda says the firm will be resuming lending later this year — but with more caution.

On their part, banks say they have been operating above board and see nothing wrong with their entry into the small savers’ credit market.

“What do they want us to do?” asked Rebecca Gakuru, public relations manager at National Bank of Kenya. “Banking is about competition, and the clients moving from MFIs to banks have their reasons for doing so. What the MFIs need to do is to style up.”

The thinking among MFIs is rather different — they argue that nurtured, indeed spoon-fed small and micro enterprises at a time when giant banks would not touch them.

“This segment of the country’s credit market should be reserved for MFIs,” says Peter Njoroge Karanja, executive director of the Kenya Federation of Self Help Associations (KEFESA).

Mr Karanja fears that the onslaught of banks on their market will drive MFIs out of business, particularly because banks are now loaning cash to both MFIs as well as their clients.