- Asset financing firms in Kenya remain unregulated, the only exception among the seven countries in which Watu Credit operates.
- This revelation came out during an ongoing inquiry by Kenya’s Finance and National Planning Committee on asset finance companies.
- In the probe, the CEO of Watu Credit acknowledged that Kenyan law lacks regulation of businesses operating in this market segment.
Purchasing assets directly can be expensive and risky and hold a company or individual back from expansion. Asset financing, therefore, provides a great option to acquire the assets an individual or business needs without shouldering hefty expenditures. The asset financing structure has benefits for both the lenders and the borrowers. Asset financing can take many forms, such as hire purchase, equipment lease, asset refinance, operating lease, or finance lease, depending on the kind of business you are involved in.
Investigation of Asset Financing Firms in Kenya
It has emerged that Kenya may be the only country in the region without a law governing the operations of the Buy-Now-Pay-Later companies, thereby exposing locals to exploitative dealings from emerging asset finance companies.
An investigation by Kenya’s Members of Parliament (MPs) into the industry players has revealed that the firms acquire loans from banks and financial institutions at a rate of 20 per cent and advance the same through asset acquisition at a higher rate.
The MPs had summoned asset financing entities Watu Credit Ltd, MOGO Credit Ltd, and M-Kopa Credit to appear before it due to mounting allegations accusing these companies of exploitative lending practices to the Boda Boda operators in the country. The engagement is part of an ongoing inquiry being conducted by the National Assembly’s Finance and National Planning Committee on credit providers.
The credit providers appeared before the committee and were asked to explain under which regulations they operate in the country. Watu Credit CEO Andris Kaneps and the Country Manager, Mr Eric Massawe, revealed that their business model does not fall under any specific regulatory framework governing their relationship with their clients.
“While we note that there are laws and regulations on the provision of credit facilities and offering of goods under a Buy Now Pay Later scheme, we are of the view that WATU does not fall within these regulations since it does not strictly fall within the provisions of such regulations,” Kaneps told the House team.
“WATU Credit’s business model does not fall within the definition set forthwith as borrowers are required to physically visit WATU’s branches or partner dealerships in order to access financing for their assets. Funds are then disbursed to the seller of the asset directly upon satisfaction of the client’s requirements, arrived at against a criterion. The only operation that is executed through a digital channel happens during loan repayments which are strictly done through M-PESA,” he explained.
On the cost of capital, Watu Credit noted that it “relies on commercial loans obtained from Kenyan banks for its operations, with interest rate averaging 20 per cent.” When factoring processing fees, the firm explained, the interest levied on working capital grows to a range between 22-23 per cent.
Kaneps added: “The down payment amount is computed as a percentage of the listed asset price chosen by the customer, and it ranges between eight per cent and 50 per cent. This will be followed by structured weekly repayments for the entire loan duration (12 to 18 months). Depending on the credit risk associated with the customer and their affordability on the down payment, our interest rates would range between 1.67 per cent (flat rate) to 8 per cent reducing balance equaling to approximately 4 per cent per month.”
Additionally, with regard to the regulatory regime, the director admitted there is a gap in law as all Acts that fall under the services provided by the company do not specifically regulate non-deposit asset financing. Further, he admitted that among the seven countries in which they operate, Kenya is the only country without regulation in that area.
The committee chaired by Kuria Kimani questioned why the logbook of the asset is registered in the name of the owner of the credit providers instead of joint ownership between the client and the company. “We find this situation not in favour of the client because in the case of an accident, the compensated party is the name that falls under the logbook, thus leaving the client vulnerable,” said Kimani.
The Committee Members, while pointing out the confusion on which category the business falls under, sought answers as to why once the motorcycles are stolen and repossessed, they are renamed under Watu Nominees Company, which is a subsidiary company owned by the Watu Credit Company.
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No regulations for asset financing firms
The CEO acknowledged that the law currently does not provide for regulating businesses and addressing customers’ concerns.
Kimani directed that the company investigate the riders they have onboarded who have complained that their motorbikes have been stolen and follow up with the aim of compensating them. The committee directed the credit providers to create a conducive business environment that does not exploit their customers.
The company agreed to cooperate with the Committee in its ongoing probe even as it moves to make legislative interventions to remedy the situation. Road traffic accidents constitute a significant health and development problem in Kenya. Among the areas that the Committee focused on were over-indebtedness, default areas, and the financial stability of consumers, especially the boda boda riders whom the Members held required cushioning from exploitation. The MPs also sought to know if the company has been meeting its tax obligations.
In response, the company management told the Committee that they had contributed over $37.7 million (KSh5 billion) in taxes to the Kenya Revenue Authority since beginning operations in Kenya and had made over $7.5 million (KSh1 billion) in losses.
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