'MSMEs not bothered by loan rates but turnaround time'

CEO U&I Bank Mwangi Ngigi during an interview. [Jonah Onyango, Standard]

A few days ago, the Monetary Policy Committee (MPC) retained the Central Bank Rate (CBR) at 13.0 per cent, maintaining the high ceiling for businesses, particularly micro, small, and medium enterprises (MSMEs), to access loans.

But Mwangi Ngigi is not the type to believe that interest rates hold back small businesses from accessing loans when they need them.

"Customers have no issue with interest rates, and that is why shylocks have clients. They (shylocks) charge 10 per cent per month, which is 120 per cent per annum, but still get clients," he says.

Mr Ngigi, the chief executive of U & I Microfinance Bank, says MSMEs are more keen on two things: customer service and turnaround time.

And this is the formula that he has used to grow the institution that started in 2007 as a chama offering credit to members who comprised businesses and a professional community.

Going national

The bank was licensed in 2013 as a community-based microfinance operation only within Starehe Constituency before going national in 2017.

Today, he says, the Bank's customer deposits, which stood at Sh20 million in 2013, are now Sh600 million.

In 2023, loan disbursement was Sh1.2 billion compared to Sh65 million in 2013. The asset base in 2013 was Sh80 million, and in 2023 it has grown to Sh1.7 billion.

"This year we are planning to disburse Sh1.5 billion in loans and have Sh2 billion in assets," he tells The Standard. The Bank largely serves MSMEs, whom Ngigi says the institution has grown with. The plan is to grow further with them as the institution transforms into a bank.

"Our future is to grow into a commercial bank in the next 10 years," he says.

Dealing with MSMEs, he says, has revealed the major challenge these businesses face when seeking financing, which sometimes is not considered when being served by large banks.

Turnaround time is a major issue, he says, which can disrupt the cash flow of these businesses and even cost them their customers.

"If you walk into a bank and would like to get a loan, even if I am not going to be told immediately if I can get the money or not, in at least five days I should have known," he says.

However, this is not the case.

"If you go to some of the banks, your application will stay for a month," says Ngigi. This is what informed one of their products called "faster faster," which is a 24-hour service.

He gives a scenario that most businesses find themselves in: a container has been imported, but the business does not have enough money to clear it to access the goods that already have customers waiting.

In such a scenario, he says, it does not make any sense for a small business owner to be kept waiting for a month as they are being appraised for the loan. They are likely not to be given the money and will incur losses due to disappointed customers and demurrage charges.

Mr Ngigi says it is better for the business to be offered a loan to clear the container on time and repay once the goods have been sold. Or if they are not able to offer the customer such a loan, then inform them promptly so that they seek an alternative.

"Even if my profit was Sh200,000 on the container, I am better off making Sh100,000 if I clear the container on time rather than waiting for a whole month," he says.

He says what the institution has been working on is turnaround time, which has been helpful for the businesses. "We are able to tell you in seven days whether you are getting the loan or not," he says.

He adds: "If you are a farmer and you want to buy a cow, do you think that person selling it will keep it for a month? We have seen customers who shift their documents to us."

Bank's portfolio

To ensure the Bank continues to serve MSMEs better, there is also U&I Intermediary Bancassurance that facilitates businesses to purchase premiums through financing.

This is key owing to the fact that 40 per cent of the bank's portfolio business is in the transport sector. These include public service vehicles and commercial transport like lorries.

This product allows customers to purchase premiums without interest and pay within 10 months.

Agriculture is also another portfolio the Bank's business is in, as Mr. Ngigi believes this sector is the future of the Bank's business, citing the subdividing of land for real estate in agricultural-rich areas.

"All these people in town will need to be fed. This is an opportunity. People have to farm outside and bring the food in the city," he says.