As defaults rise, lenders pray for strategic investors

From left- Capital Markets Authority Chief Executive Officer Paul Muthaura, Real People board member Nthenya Mule and Nairobi Securities Exchange chief executive officer Geoffrey Odundo during the bell ringing to mark the start of Real People bond trading at the Nairobi bourse on August 19, 2015. FILE PHOTO | NMG In 2015 when only five people out of every 100 disappeared with your money after loaning them, banks and microfinance institutions could afford to dish out cash knowing that good borrowers would cover the difference.

But now it is a different ball game as loan defaults have almost tripled, where 12 out of every 100 borrowers are likely to vanish.

And banks, which cannot get borrowers to pay back are running into financial problems that are threatening their very existence.

Take for example Real People, a South African start-up that went on a lending spree and lost almost Sh1.7 billion over the last four years over defaulters it cannot trace.

During the good days, the firm raised money in the bond market confident it had selected the right people to give the cash to.

Over five years the company had seen considerable changes in the market as use of financial services among adults grew from 41.3 percent in 2009 to 66.7 percent in 2013, while those relying on informal ways of getting cash declined from 27.2 percent to 7.8 percent.

Real People saw that a segment of Kenya had limited access to credit because they were perceived as risky and went for them.

‘Informal’ microenterprises

“Most non-deposit taking MFIs are mostly focused on lower end ‘informal’ microenterprises using group lending model hence untapped potential in target segment, and few direct competitors in this niche segment,” Real People Information Memorandum seeking Sh5 billion bond programme in 2015, read.

As bad loans turned sour, Real People businesses was teetering towards a precipice as the Sh1.2 billion bond was about to mature.

“In that bad book, people have died, people have moved on, people took us for a ride so it would be wrong to say that there is some magic wand to fix that. Some of those guys can’t even be traced for example,” Real People chief executive Charl Kocks told Smart Company. The business went into financial difficulty, auditors dismissed it as a going concern and its creditors were soon at their doors.Real People turned to that invincible almost godly hope of getting a strategic investor.They are not […]

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