Written by Abyssinia Lati and Benjamin Muindi
December 6, 2007: For all the talk of competition in the banking sector, a window remains open for niche services that are evidently missing in the current menu of products.
This gap is increasingly attracting new players into Kenya's banking scene with private equity funds showing keen interest over the last one year, continental banks looking in and domestic micro finance lenders graduating to the mainstream.
But it is the impending entry of the Kenya Women Finance Trust (KWFT) that has aroused interest given its broad presence in rural areas, which commercial banks have been targeting through new branches.
The lender will be following in the footsteps of — Kenya Rural Enterprise Programme (now K-Rep Bank), which has transited from a MFI to a bank.
Despite Equity Bank and Family Bank often being mentioned as trailblazers in converting from micro finance to mainstream banking, theirs is more of the usual path of broadening from a building society to a commercial bank.
The rural unbanked population has recently emerged as a new platform for the contest among banks.
However, the entry of players like KWFT with experience in the niche segment — now relying on deposit mobilisation instead of credit lines alone — may soon see bigger banks rethinking their role in that segment.
KWFT has 86 field offices in the deepest regions of rural Kenya, where it serves over 160,000 customers, making it bigger than many low tier licensed banks today.
"We go where women are," says Dr Jennifer Riria, the chief executive officer of KWFT.
The institution has disbursed over Sh4.2 billion in the first nine months of this year alone with the average loan amount being Sh40,000.
Despite converting into a bank, Dr Riria says it will remain focused on low-income women entrepreneurs only.
Its conversion appears to have been informed by necessity.
Some time in July 2006, KWFT wanted to raise Sh1.6 billion in support of its operations.
"We found that the savings of our customers held in other banks was Sh1.5 billion," Dr Riria told Business Daily.
Now KWFT is in the process of preparing an application to the Central Bank of Kenya (CBK) that will enable it launch banking services in a year's time, raising the competition for deposits as well.
Although the potential for growth is big in Kenya with only a fifth of the population boasting access to financial services, the move towards a mass banking model has confounded analysts as banks in most emerging markets focus on niche products.
With the exception of a bank like Citibank, which remains focused on international mediation and trade facilitation, only size — perhaps — separates the institutions in Kenya with the product offering remaining almost the same.
Duplication of services with no tangible differences in pricing has left many unique needs in the market unmet as banks prefer to move on to a ready market rather than evolve a market for innovative products.
The Islamic banking segment has recently come alive with the licensing of two fully fledged banks — First Community Bank and Gulf African Bank — to offer Sharia compliant products.
Unlike in conventional banking where leases and lending are based on the interest principle, Islamic banking is based on the ethical investment principle with returns shared between lender and borrower. Islam forbids charging of interest.
Leading banks like Barclays Bank, Kenya Commercial Bank and National Bank have unveiled such products without rolling them out aggressively to serve their top end clients.
