SME Financing for Real People

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    With a clear understanding of the overall SMEs credit market and the financing gap that needs to be addressed, Real People banks on its innovative product delivery to fuel the growth of small businesses.

    Kenya has in the recent past seen tremendous growth in small and medium businesses as well as deepening of the financial sector. Vibrant and expanding small and medium-sized enterprises (SMEs) are vital for inclusive growth of Kenya’s economy. However, a recent report by FSD Kenya paints a bleak picture. It indicates thatSMEs have a difficult time accessing the necessary financial services to actualize their potential. Real People East Africais set to change this narrative in a major way. With a clear understanding of the overall credit market for SMEs and the financing gap that needs to be addressed to fuel their growth, the firm supports small businesses by delivering appropriate financial solutions.

    Edge Magazine met Daniel Ohonde, the chief executive officer of Real People EA during a round-table discussion at Sarova Stanley Hotel in Nairobi to unravel the firm’s successful journey.

    Daniel at a glance

    Profiled as a seasoned leader with extensive international experience in financial services, management consultancy and manufacturing among others, Danielassumed his responsibilities at the firm in 2012. With a view to lead the institution to greater heights, he begun a restructuring process that would later pay off in a foremost way.

    He joined Real People East Africa in 2012 from the African Development Bank where he was chief operations officer.

    He holds a Masters Degree in Finance from the University of London and an MBA in Strategic Management from the United States International University and a Bachelor of Science Degree in Mechanical Engineering from the University of Nairobi.

    He is registered with the Engineers Registration Board of Kenya.

    During his free time, he enjoys the company of family, likes reading alot and is passionate about playing and watching lawn tennis,basketball and cricket.

    Has led multi-disciplinary and multinational human resources/ talent. This includes working stints with The Coca-Cola Company and African Development Bank among others.

    Real People

    Real People is a credit-only micro-finance institution. It is part of the larger Real People Group that was incorporated in 2001 in South Africa. It commenced operations in Kenya in 2006 originally focussing on payroll lending until 2009 when it restructured to offer credit to SMEs.

    Sitting at the helm of the regional unit, Daniel oversees the firm’s operations in Kenya, Tanzania and Uganda. “We started with a team of ten people and steadily grew over the years to a staff of 240 and 16 branches across the region,” he reveals.

    “Our operations are built on a focussed portfolio of businesses and services anchored on the provision of responsible finance solutions to entrepreneurs and small to medium businesses through business finance and asset finance loans,” he adds.

    “Our fast growth can mainly be attributed to the fact that we have been very focused in providing responsible finance solutions to entrepreneurs and creating sustainable futures true to our vision “Sustainably Improving Lives” .The institution targets growth oriented small and medium enterprises (SMEs).

    With the current state of the economy in the region concerning him, heis of the opinion that as much as the growth of SME’s in the country is commendable; there are still challenges such as barriers to accessing funds ,unpredictable interest rates and unpredictable  micro-economic environment.

     

    What’s there to know about the products?

    Real Asset Loan offers an asset financing product which enables SMEs to acquire productive machinery which will be used to expand or grow the business.

    In this spirit the institution offers innovative products and services tailor made to satisfy the customer’s needs, in the same breath last year Real People won the MFI Award for Innovation. The Real Flexi Facility is designed to give business people loans ranging from Ksh.100, 000 to Sh5 million.The facility allows one to take up an additional loan without having to apply for a new one and offers access to the facility at any time using a flexible repayment option.

     Innovation

    Real People’s specialty in innovation and value addition has further strengthened its presence in the industry.“For instance, ourrelationship officers across the country, have tablets and client’s data is keyed in digitally. The data is subsequently accessed from a central location promptly. It has increased efficiency and revolutionised the whole customer experience,” he explains.The processes are instant and loan disbursement is much faster compared to that of traditional banks.

    He adds: “As a business, we are at a point where we have taken off. We made sure that we had enough funds for onward lending through apublic bonds issue of Kshs 1.6 billion in August 2015.”Daniel also expresses his optimism in the firm’s sustained growth that he attributes to theircommitted human resource.The institution runs an active loan book of Kshs. 3billion having lent out to a portfolio of around 40,000 customers.

    However going forward Daniel reports, Real People is keen on maintaining a good quality book. Their main focus is on how to maintain low non-performing loans since business success is quantified on a healthy loan book.

    “We understand our customers. Most of them have one or more businesses. We therefore analyse their financial records, cash flow as well as sales volume. It gives us an insight into their needs and channel relevant solutions at competitive rates,” he reveals.

    Asked why the organization does not fund start-ups, Daniel points out to the need to fund clients who understand their business cycles. “We target businesses that have been in operation for at least two years. We believe that such entrepreneurs can account for their work and are more likely to succeed.”

    Uncertainty in the industry

    The recent volatility of the Kenyan shilling and high inflation rates affected the interest rates and subsequently dampened consumer’s ability to service a loan.It’s further worsened by multi-borrowing within the sector.He explains: “We have situations where people are borrowing from one lender to repay another creditor.

    To mitigate this, Real People has embraced robust risk management structures to ensure that it funds genuine and worthy people. Its partnership with TransUnion and Metropol credit references bureaus has been helpful. The information obtained is used in assessing borrowing patterns of both existing and potential customers.

    Lack of financial literacy among clients is also a concern. He says, in case of a loan facility, sometimes entrepreneurs lack proper financial and business management skills. It affects the way they spend credit facilities. However, Danielsays that this year the institution will embark on building the capacity of the entrepreneurs with relevant  management and financial skills.

    Being a credit-only institution, Danielcautions that it should not be misconstrued with deposit taking MFIs. Only MFIs which take deposits from the public are regulated by Central Bank of Kenya under the current Microfinance Act. However, plans are underway to develop a regulation through the Association of Microfinance Institutions-Kenya (AMFI) and the National Treasury.

    Solid governance

    Daniel is confident that the institution has operated successfully since its inception ten years ago. When asked what the secret is, he quickly alludes to the robust governance and leadership structures.

    It has a board chaired locally by Albert Ruturi. Mr. Ruturi is a seasoned banker with a career spanning over 30 years in finance, management and leadership. The board further comprises of Charl Hendrick Kocks, Neil Grobbelaar, Nthenya Mule, Daniel Ohonde (CEO) Yvonne Godo and Norman Ambuya, four of whom are non-executive directors.

    The company subscribes to the highest standards of corporate governance with Grant Thornton appointed as its auditors in Kenya and Tanzania while KPMG auditsits operations in Uganda.

    He explains it is in this view of a solid governance structure that the Central Markets Authority (CMA) approved its rights issue last year. To authorise a bond, he says, CMA does a rigorous check on governance and leadership.

    “We provide value to clients. We are comfortable with the brand and believe we will grow because there is still huge and untapped potential, especially in the property sector which interests us,” he ends.