Although Kenya leads its East African peers in terms of financial inclusion, not many Kenyans at the bottom of the pyramid can actually access affordable credit to enhance their livelihoods.
The 2017 Brookings Institution Report on financial inclusion shows that over 75% of Kenyan adults have a financial account, but other factors, including risk profiling, conspire to deny most bottom-of-the-pyramid customers the much needed access to finance.
It’s this gap that prompted Philip Kibet and his partner to cofound Centenary Micro Enterprises Services in 2011. Their aim was to enhance financial inclusion.
Started as a microfinance consultancy, CEMES worked closely with financial institutions like Saccos and microfinance institutions to develop products and services. Philip’s work was to research, conceptualize and design microfinance products that could appeal to the targeted demographic.
Having worked extensively in most of Sub Saharan Africa as a microfinance consultant, Philip says he noticed a worrying trend: Most financial institutions were ignoring the bottom of the pyramid segment as they saw it as high risk and economically unviable.
As a true entrepreneur, he saw an opportunity and pounced on it. In 2014, he refocussed his business from a consultancy service provider to a financial intermediator, giving a financial lifeline to thousands of unbanked people.
“I wanted to make it easy for people to access credit,” he says.
To kickstart his new preoccupation, Philip pitched tent at the coastal town of Kilifi after he realized that most financial institutions were avoiding the Kenyan coast.
“There’s this perception that coast residents are lazy and having worked with them before, I wanted to debunk this myth. That’s why I chose to go against the grain to launch my services there.”
His company started small, loaning out small amounts of money to locals. With no capital to set up proper systems, he had no other option but to run Excel sheets as an accounting system, a time consuming, error-strewn and unreliable method when scaled.
“As more customers joined, Excel proved to be ineffective.”
Like most startups, his business soon faced serious headwinds. Philip had started this business as a side hustle as he held his day job, a decision that would later cost him dearly. In the first few months, he lost all his capital. His first employee, a greenhorn in the industry, lent all the available money to customers, leaving the fledgling firm in deep financial straits.
Undettered by the setback, Philip soldiered on, roping in his friends to inject some cash into the struggling business.
When he realized that the business was making no progress, he made a leap of faith and quit his job to focus on growing his venture.
“It dawned on me that I needed to dedicate more resources to this venture. After quitting employment, I used my retirement money to breath life into this business.”
This paid off in earnest.
In 2015, CEMES made the list of over 1000 African startups that received seed capital and entrepreneurship training from the Tony Elumelu Enterprenuership Program. After the training, Philip and his partner used the seed capital to further grow the business.
Since then, CEMES has grown in leaps and bounds. From three customers at inception, the company boasts of a customer base of over 35 000, and an impressive annual income of over Kshs 187 million.
With a staff complement of over 119 people, and 39 branches, no one can deny that the firm had been on a growth trajectory.
The company achieved one of its most significant milestones in 2016 when it split its businesses into three companies under Micro Cap Holdings. CEMES became the credit arm of Micro Cap while Ideon, a business outsourcing company, provides back office services like finance and HR to MicroCap and to any other company.
The third subsidiary is a franchise business named Credit Micro Franchise.
Their credit arm provides financing to commercial enterprises.
“CEMES is a mix of relationship banking and mobile banking. We have physical branches and a mobile application,” he says.
It’s modelled around revolving credit.
With time, CEMES has grown to incorporate an innovative agribusiness product that helps dairy farmers to track milk production and to minimize post harvest losses.
The app, which is tied to an electronic weighscale, also records the milk data for farmers, enabling them to easily access credit using their milk delivery records.
“Our app generates a ticket that shows how much milk a farmer has delivered.” Because it’s automated, it helps farmers to reduce wastage by up to 33%.
The app works closely with co operative societies to reach farmers.
According to Philip, the agribusiness product has been well received in the market. He says farmers can now use automated records to get credit from CEMES or from any other financial institution.
“The product has increased their household income.”
Micro Cap Holdings prides itself for having a robust branch network, but Philip appreciates that the company doesn’t reach as many customers as it would like to. That’s why they created a third subsidiary named Micro Credit Franchise. “To take micro credit to more customers, we sell franchises to local entrepreneurs who use our systems and our brand,” says Philip.
So far, the firm has sold over 30 franchises to entrepreneurs in Nakuru, Kiambu, Narok, Bomet, Machakos and Kajiado.
So, what has been the driving force behind Micro Cap Holding’s success?
“Mentorship, discipline, a good model, market linkages and great staff,” says Philip.
He adds he was fortunate enough to learn the ropes of entrepreneurship from the Tony Elumelu Entrepreneurship Program as well as from the German International Corporation, and the German Chamber of Commerce.
It’s hard to talk about lending without mentioning technology, an important cog in the wheel of the credit industry.
For Micro Cap, their success was inspired by the introduction of a superior IT system that allowed them to serve more customers in an effecient way.
Philip says technology is the lifeblood of the lending industry. Indeed, lenders have to use data to score their customers and to provide quality services.
No company operates without facing challenges and Micro Cap is no exception. For them, they need to invest heavily to scale the business. But getting funds to do this is a challenge. To overcome this, the company is fundraising as it seeks to increase its footprint in East Africa.
As part of its expansion plan, Micro Cap wants to increase its asset base to 0.5 billion within the next three years.
Their main goal is to morph into a regional brand, with branches in Tanzania and Uganda.
In the meantime, the firm is keen on enhancing the livelihoods of its customers through its three fully owned subsidiaries.