Former banker carves out niche in digital credit



Technology

Former banker carves out niche in digital credit


Little Pesa Limited Managing Director Rakesh Kashyap. PHOTO | DIANA NGILA | NMG

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Summary

  • Rakesh Kashyap is a seasoned banker who has worked in the industry for over 42 years, including 25 years in India and over 17 years in Kenya.
  • At the end of December 2017, he chose to leave his position as CEO at M Oriental Bank to enter the digital lending sector.
  • Mr. Kashyap, now 66, founded Little Pesa, a deposit-free microfinance company that provides unsecured short-term loans of up to 100,000 shillings.

Rakesh Kashyap is a seasoned banker who has worked in the industry for over 42 years, including 25 years in India and over 17 years in Kenya.

At the end of December 2017, he chose to leave his position as CEO at M Oriental Bank to enter the digital lending sector.

Mr. Kashyap, now 66, founded Little Pesa, a deposit-free microfinance company that provides unsecured short-term loans of up to 100,000 shillings.

“I had had enough of banking for 42 years – dealing with borrowers all the time and sometimes fighting for loan guarantees. I found another love in digital microfinance, ”explains Mr. Kashyap.

Realizing that the digital micro-lending space already has many other established players such as Tala, Branch, Okash and Zenka, Mr. Kashyap had to do something different. He opted for a niche market.

It focuses on employees and customers only need to hand over their national ID card and pay slips to get the electronic loans through the Little Pesa app.

Little Pesa began operations in 2019 and last year achieved sales of 100 million shillings. Its customers are employees in around 130 companies.

Mr. Kashyap says January’s performance indicates a possibility of reaching 500 million shillings by the end of the year, as the average loan amount reached 25,000 shillings compared to around 10,000 shillings in 2019.

“We lend around 16 million shillings per month. We want to grow slowly and steadily, so we are careful about bringing in new customers, ”said Mr. Kashyap.

“It’s a success and we really want to take it to another level. “

And unlike models used by other digital lenders to approve loan limits, Little Pesa does not offer loans above 50% of take-home pay.

The company has set a minimum loan of 5,000 Sh and does not lend to employees whose net salary is less than 30,000 Sh.

Mr. Kashyap says the cap on take-home loans has helped the company avoid pushing people into bigger debt and keep default rates below four percent.

“I found that the employees were very concerned about their image. We don’t want to give them money that they won’t be able to pay or put them into over-indebtedness, ”he said.

Little Pesa charges four percent interest on seven-day loans, while 15-day and 30-day loans attract interest rates of six percent and eight percent respectively.

As an incentive, one in seven loans is issued at zero interest to clients who have borrowed and repaid their previous six loans on time.

Despite layoffs and pay cuts due to Covid-19, Mr Kashyap says he has not seen a spike in default.

“I attribute this to the fact that we don’t lend more than half of someone’s take-home pay. This makes it easier for them to repay, ”he says.

Customers who fail to repay their loan on time have up to 30 days to do so, but the interest rate increases by two percentage points.

Little Pesa is now preparing for a new product that will allow employees to borrow up to 200% of their take-home pay. This will be repayable in six months at a monthly interest rate of five percent.

Last year, digital lenders were disassociated from credit reference bureaus following public outcry over widespread abuse of the Credit Information Sharing Mechanism (CIS).

However, Mr Kashyap says this did not hurt Little Pesa’s prospects as it already had a close relationship with its clients. “This decision means that we are becoming more careful about who to lend to. It takes more time to assess the client because it is usually the genesis of strained relationships later on, ”says Kashyap.

He favors a mixture of self-regulation and regulation by the Central Bank of Kenya if digital lending can grow without harming consumers.


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