The M-Kesho bank account is causing jitters among micro credit institutions who fear losing current and prospective customers to the new service because of its easy accessibility through the mobile phone.

The M-account allows users to receive small loans currently limited to a maximum of Sh5,000.

Borrowers will be assessed based on their credit history of M-Pesa and later in repayment through M-Kesho.

They will apply for the loan via the phone and receive notification within minutes.

If they qualify, borrowers will receive the money on their phones which they can withdraw from the nearest M-Pesa agent.

This is a major shift from the practice of micro credit institutions that lend micro loans only to organised groups to curb the risk of default.

In the micro credit institutions model, applicants must belong to an organised group of at least four people, fill in loan application forms, list collateral they offer and wait for days before they are notified if they qualify.

Loanees are paid by cheque and have to wait for about four working days for the cheque to mature.

The commercial banks also take their cheque-handling charges from the loan amount.

Micro credit institutions include small financiers like Faulu Kenya, Kenya Women Finance Trust and savings societies known as Saccos.

Shylocks are informal micro credit players.

“We are concerned that M-Kesho may pull away some of our clients but this is a chance for other micro lenders to innovate,” said George Ototo, the acting managing director of the Kenya Union of Savings and Credit Cooperatives (Kuscco).

Key players in micro finance sector, including the Association of Microfinance Institutions of Kenya requested not to comment and gave divergent reasons for that.

Mr Moses Ochieng, a Financial Sector Specialist for East and Southern Africa working for British government international development arm, DFID said the new account “was a major win” for low income borrower because it offers them a choice from micro finance, Sacco or shyloks.

“Even under agency banking, agents cannot appraise loan applications and the process of channelling those applications through the commercial bank branch means banks are still not close to customers when it comes to giving loans.”

by Steve Mbogo