The purpose of microfinance is to provide financial services to people generally excluded from traditional banking channels because of their low, irregular and unpredictable income
Unlike their counterparts in developed economies, micro and small enterprises face numerous hurdles in accessing credit, denying them an important growth line at best or accessing it at a very high cost.
Despite this immense challenge they face, these enterprises are vital to developing economies. A study by CGAP indicates that SMEs generate more than half of formal employment opportunities worldwide-an even larger share in developing countries. The informal sector in developing economies, which consists mostly of MSMEs, provides jobs to more than half of the labour force and estimated to be at least 35 per cent of the GDP.
With this hindsight, Centenary MicroEnteprise Services Limited (CEMES) was established in 2014 with a major mandate to do capacity building of small-scale entrepreneurs through training and lending. “Our mission is to enhance financial inclusion and support micro and small entrepreneurs financially. Through this we strengthen communities and institutions as a way of fighting poverty,” says Alfred Sunza, CEO of CEMES Limited during an interview with StartUp Magazine at his office.
“Most of these people were traditionally side-lined from mainstream financial services because they were deemed risky. They did not have collateral or any form of data that can be used to gauge their credit worthiness,” he adds.
“However, because of the important roles they play in the society, we took a risk to finance them, an intervention that has paid off over time,” says Alfred.
“We trained individuals and entrepreneurs on financial literacy and entrepreneurial development skills. However, this has quickly changed over time as we strengthened our lending capacity,” says the executive.
“We came from an industry where individuals had to wait for over a month for a loan to be processed,” says Alfred who is a seasoned banker adding that, “We wanted to change that because it wasn’t good enough for the economy.”
A business person waiting for a whole month for a loan to be processed means that he will miss on an opportunity.
He says that the firm’s quickest turn around period for loans was motivated by such challenge that continues to dog the important sector.
“We are people centered,” he explains.
“Our product helps people improve their working capital velocity and improve their lives,” he reveals.
The firm further enhances the experience of the clients it serves through a customer care centre. It is among the few financial institutions that boast of having a full functional customer experience centre.
CEMES is also banking on technology to drive innovation, design and distribution of its products in the market. “This has set us on a different pedestal that has been key in high retentions of our clientele,” he opines.
While people borrow for different reasons, the firm has adopted a mechanism to ensure responsible lending. “We do an appraisal to determine how much a borrower needs and can comfortably repay. For instance, if it is a micro business, we look at their business and only commit up to 50 per cent of their average daily sales to an instalment, making it easy for them to repay.”
“It doesn’t strain them. Our rates are also competitive and we have friendly repayment models they can explore,” he explains further.
It is no surprise then that the company is growing tremendously and now serves over 30,000 customers after five years of operation. Between 12000 to 15000 clients borrow actively.
CEMES has a wide networking spanning over 29 branches across the country. It also has a franchise model-where individual who have enough capital can use its brand and infrastructures to deliver credit facilities to the targeted market niche.
The CEMES franchise model currently operates 52 touch-points countrywide.
“We want to reach more people and we can see there is a lot of headroom to do more,” avers the CEO.
“I am always excited by the quality of micro-entrepreneurs we serve. They have trusted us as their reliable partner. We are always on cue to sort their pressing financial needs,” he explains.
Many customers that the firm serves have been able to introduce new wares/products in their business, grow and even diversify.
Economic Importance of MFIs
Alfred says MFIs have deepened financial inclusion as many people in Kenya were deemed unbankable-The purpose of microfinance is to provide financial services to people generally excluded from traditional banking channels because of their low, irregular and unpredictable income.
“We have helped the disadvantaged households and entrepreneurs gain access to affordable services to help them finance income-generating activities, accumulate assets through savings, provide for family needs and protect themselves against any financial eventuality.”
MFIs also pay levies and taxes to the government.
Currently, CEMES supports over 500 young people through direct employment opportunities.
Other than creating employment, the company is aiming at fully automating the lending decision making process by use of data analytics- which has been proven to be more objective-translating to a better repayment rate, better client retention rate and better company image.
The government is also casting a keen eye on the financial industry to protect consumers and promote good practices, he says.
As the CEO, Alfred accepts that the company has had its own challenges. For instance, financing was a big problem at inception. The firm did not have a solid financial base, and had to borrow funds for onward lending. This affected the cost of credit. He is however optimistic that in the near future the company will be able to trade fully with its own funds.
Despite the challenges, he is bullish about the future and hopes they can bank on technology to enhance financial inclusion.