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XINHUA NEWS SERVICE REPORTS FROM THE AFRICAN CONTINENT

 

Kenya table banking groups less appealing as digital loans grow

by Bedah Mengo NAIROBI (Xinhua) -- For the last five years, Caroline Akoth had been a member of a table banking group that comprises of 12 small-scale business women.

The group members were meeting twice a month and contributed 500 (5 U.S. dollars) each per sitting.

They would then take loans based on their savings.

Akoth, a resident of Kitengela south of Nairobi, had borrowed from the group several times to expand her business.

However, three months ago, Akoth, 47, withdrew from the group and asked to be given her 700 dollars savings.

"I felt I did not need to continue being a member of the group because I was borrowing more regularly from the digital apps than from the group," she said on Monday.

Six other members of the once vibrant table banking group have also quit, with the outfit staring at dissolution thanks to digital loans.

The saving groups, which have been very popular in Kenya for years and are credited for uplifting people financially, are facing disruption from digital loans.

With many people readily accessing loans from the close to 100 digital apps in Kenya, being a member of a saving groups is no longer appealing to citizens.

"I was in the group so that I can access loans since I could not get from banks or micro-finance but now the loans are on my phone. Why should I continue to contribute every month for me to access money?" posed Grace Mutuku, who runs a vegetable store in Nairobi.

Mutuku noted that from an app by a bank, she borrows up to 300 dollars at a click of a button, money that it would take members of their group to meet for her to get.

While the disruption caused by the apps in the Kenya’s banking sector has been documented with the financial institutions joining the fray to protect their turfs, the effects of the apps to informal saving groups is slowly unraveling.

"We disbanded our group and everyone was given back their shares.

"It had reached a point when members were not attending meetings or contributing and they would talk of easy access of loans through the apps in meetings.

"It was not feasible to continue," said Simon Bwire, a motorbike rider in Busia, western Kenya.

Bwire said he will miss the group because it is through it that he acquired his second motorbike.

In table banking groups, members normally contribute an agreed sum of money every week, fortnight or monthly with the purpose of lending it out at a small interest rate averaging 5 percent to each other.

The practice is called table banking because the transactions are done at or around a table.

The women congregate, collect and lend out money at the table.

Besides the table banking, another saving group popular in Kenya is called merry-go-round, where members meet weekly or monthly, contribute money and give to one person until the last one gets before the cycle starts again.

According to the Kenya Association of Investment Groups, the saving groups that include table banking schemes and merry-go-round, controlled up to 200 million shillings in assets in the east African nation.

Bernard Mwaso of Edell IT Solution noted that digital loans have disrupted the entire financial sector but unlike banks and saving and credit cooperative societies (saccos) which have been able to counter, savings groups are feeling the pinch because of their informal nature.

"Banks and saccos have started digital apps ring-fencing their market but table banking groups are scattered all over and each operate individually with members setting own rules.

"They cannot fight back," he said.

Mwaso noted many members of savings groups were small businesspersons, the same market that digital loans has gone for.

"Digital loans are expensive because they offer loans at one-off interest of 15 percent but ease in access of the money is their selling point," said Mwaso.

But even as Kenyans go for the digital loans, Central Bank of Kenya (CBK) is pushing for their regulation noting most are exploiting borrowers due to high interest rates. Over six million Kenyans are hooked to the loans, according to CBK.

"The pricing of mobile phone-based loans is outside regulatory control.

The charges are not part of that interest cap law," said recently Patrick Njoroge, the CBK governor.

             

 

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