MFIs trigger improved loan demands amid Covid restriction fears
By People Reporter, July 22, 2020CREDIT: Kenya’s micro-finance institutions (MFIs) are showing signs of improvement, two weeks after the country eased Covid–19 related restrictions with many people returning to business.
Speaking to Business Hub executives of MFIs say a good number of them have recorded improved loans disbursements and repayments, even though there are concerns that this may quickly change on the back of further restrictions.
President Uhuru Kenyatta lifted the ban of movement in and out of the Nairobi, Mombasa and Mandera counties in July 6 which had been imposed to contain the spread of the coronavirus in the country.
But there have been fears that he could rescind that decision in the coming weeks should the number of coronavirus cases escalate – a result that could leave MFIs conduct their activities on a tight edge.
“We have seen increased enquiries and also our customers outside Nairobi are making inroads into our offices, our hope is that the trend continues,” said Peter Macharia, the chief executive officer of Jijenge Credit, a local microofinance institution, who said the firm has so far restructured loans worth over Sh100million since April.
Certain towns
Faced with lockdowns across major counties and restrictions on movement in certain towns, a host of MFIs had been staring at a decline in collections and increased demand for working capital from borrowers, most of who continue to struggle to qualify for loans.
The struggle has been caused by creditors requiring higher credit scores and bigger down payments in response to higher rate of unemployment and economic uncertainty amid the pandemic.
While banks can offer some relief to corporate and small business borrowers, there are few options to ease the pain for retail borrowers and this according to most executives, is the current case for non-bank lenders and other financiers.
As of end of June, commercial banks had for instance, restructured loans worth more than Sh560 billion, reflecting the cash flow burden brought by the Covid-19 pandemic that has affected borrower’s ability to repay.
Out of that, Sh190 billion were personal loan. This trend, according to ECLOF Kenya Chief executive Mary Munyiri, is likely to continue into the unforeseeable future all the more because more MFIs will be checking and rechecking borrowers’ finances and ability to repay in response to current economic turmoil.
Business models
“We took an early precaution to restructure our business models in terms loans disbursement due to the uncertainty at that time, but that could be different now as we are seeing an improvement in our business…but this could also slow down if we are forced back into another lockdown,” she said.
Since March the industry has witnessed a slip in repayment rates which would ordinarily render many MFIs insolvent in less than a year, but Munyiri says there’s “no course for alarm at least not immediately.”