Poor Kenyans have been trapped in debt by the explosion of fintech in the East African country.
Every day at daybreak and just before sunset, an interesting routine now takes place in Kisumu city and satellite townships.
Groups of "Maasai" men draped in their traditional shuka visit micro and small traders just as they open businesses, and hand them some cash before leaving only to return before the merchants close their premises for the day.
During the visits, money changes hands between the traders and the Maasai men who offer them informal loans depending on one’s capability to repay.
And this “Maasai loans” craze is building up fast among traders, including boda boda (motorcycle taxis) operators, shoe shiners, barbers and hairdressers, hawkers, and tiny shopkeepers.
Squeezed out of formal credit systems for their perceived high risk and coupled with the inconvenience of default blacklists on Silicon Valley-spurred fintech loans, the traders are finding solace from the Maasais who come without conditions such as mandatory collateral, strenuous paperwork or even listing with the various credit reference bureaus (CRBs).
“Dealing with the Maasais is the most sensible thing for many small traders right now. I use a rented boda boda, so each morning I take a Sh500 loan from them to buy fuel, which I use to ferry passengers and make deliveries around town. I then refund the amount with an interest of Sh75 at the close of business,” says John Otieno, a boda boda operator based in Manyatta, a low-income neighbourhood in Kisumu.
“I find this hassle-free and convenient since I am already on a CRB blacklist for defaulting on a digital loan and no one will consider me for more loans on the formal channels, yet I need money to keep operating,” he adds.
Official data by the Central Bank of Kenya (CBK) indicate 7 million of the 19 million accounts listed with the CRBs have been in default, including 4.2 million linked to mobile phone loans.
The high and rising number of blacklisted loan accounts means that the chances of borrowing are highly jeopardised for millions of Kenyans, including Otieno, who may wish to grow or finance their businesses.
Small businesses and traders have also borne the brunt of limited funding by banks, which deemed them a high risk of default.
Not even a government-backed Credit Guarantee Scheme (CGS) seems to have derisked the small and medium enterprises (SMEs).
Data shows that a total of 2,190 SMEs received Sh3.3 billion under the State-backed CGS in the year to June 2022, as the government’s plan to derisk small traders took off at a slow pace.
The CGS encourages banks to disburse credit to borrowers they would otherwise turn away, confident that they will be compensated in case of defaults.
The National Treasury said of the 2,190 facilities issued under the CGS in the financial year 2021/22, small enterprises received 1,321, medium enterprises received 248 and micro-enterprises received 561.
In terms of the value of facilities, small enterprises received Sh2.29 billion, medium enterprises Sh592.5 million, and micro-enterprises received Sh431.9 million.
Put off by the suppressed chances of landing mobile and bank loans, many small traders in western Kenya are now finding solace in the Maasais, who have stepped in to keep their businesses going.
Traders say the Maasais offer them debt servicing options, including repayments within the same day or over 12 days, depending on one’s capability.
The loans are structured so that the interest charge is between 15-30 percent, depending on the size of the business.
“Traders have a choice on the repayment terms, which are up to 12 days and at an interest of up to 30 percent and a processing fee of about 10 percent. For example, if you want Sh4,000 from the Maasai payable over 12 days, they will hand you the money less Sh400 as processing fee, then you will repay Sh400 per day for 10 days,” Christopher Otieno, a barber in Kisumu, said.
The Maasais don’t demand collateral but rely on the goodwill of their trusted customers who refer the borrowers to them.
“When you refer someone to the Maasai you automatically become some sort of a guarantor. The scheme thrives on goodwill because traders need the money and they don’t want to spoil relationships with the Maasai,” Otieno reveals.
Despite the high-interest charges, the business in Kisumu has become very vibrant such that, other than the Maasai, it now attracts creditors from the neighbouring cash-rich Uasin Gishu, Kericho, and Bomet counties who are using part of their proceeds from cash crops such tea and maize to make some profit.
“Young girls from Kericho and Uasin Gishu go around estates and the Kisumu central business district lending money to small businesses,” a trader confirmed, on condition of anonymity to avoid jeopardising their ties with the Maasais.
Kevin Mutiso, chairman of the Kenya Digital Financial Services Association of Kenya, said digital lenders remained committed to supporting businesses through lending.
“Most of our borrowers are business groups who service their dues promptly. Our algorithms show that loans can be put at risk and we act responsibly. Those who, for example, take loans for betting are known to us and we cannot keep leading them to harm,” he said.
