By Caroline Mwendwa
The power of SMEs to transform an economy cannot be gainsaid.Estimates put Kenya’s SMEs at about 7.5 million. A 2014 CNBC news report puts SMEs’ contribution to Kenya’s GDP at about 45%. Studies have ascertained their potential times without number and policies have been recommended to help support them. But gaps still remain unfilled as many SMEs succumb to the myriad challenges that rock them. At the centre of these hardships is inaccessibility to finances and lack of skill and knowledge on how to best run these businesses. The Deloitte Kenya Economic Outlook 2016 notes Kenyas SMEs are hindered by inadequate capital, limited market access, poor infrastructure, inadequate knowledge and skills and rapid changes in technology.
Driven by the desire to fill this gap, Michael Monari who has been in the banking industry for many years established Longitude Finance, a multifaceted facility to serve the SMEs adequately. “Having seen the plight of SMEs while in the banking industry, I realised that there was dire need for a facility that caters for their needs in a more specific way. That is why I registered Longitude Finance in the year 2015 with an aim to afford them credit, skills and knowledge that will enable them sustain their businesses hence create jobs,”says Michael Monari, the founder and CEO at Longitude Finance. Longitude Finance is a credit only microfinance institution currently serving through three outlets in Nairobi and Mombasa. It currently serves 2,300 customers.
Longitude Finance operates in a model that creates a highly conducive environment for SMEs to thrive. Not only does it lend, but also acts as a pool of services to the SMEs. It provides insurance services while at the same time offering them capacity building and opening them to larger markets through partnerships.
Longitude Finance Business Model
Longitude Finance operates under four pillars. The first pillar is the micro-lender pillar which supports the SMEs alongside other customers. “Under this pillar we have venture capital for injection in small and larger SMEs; short term business loans with easy repayment terms, trade and finance products and salary loans for civil servants such as TSC staff at very low rates.” The loan portfolio includes business loan which is available to individuals, small, medium and large enterprises to increase and sustain business operations by stocking, financing or expansion purposes. Then there is the group loan which is available to members of a group to assist in running individual projects. For such loans the group members co-guarantee each other. The third option is trade finance which includes invoice discounting, bid bonds and letters of credit for importation of goods. The minimum amount one can borrow at this facility is Sh10,000 and the maximum is Sh500,000.
Pillar number two involves customers who want to expand their businesses. Longitude Finance comes in to lend them support. One of the requirements for such businesses to qualify for support is that they should have potential for growth and create employment opportunities. “We link such businesses with funders as one of the means of support.”
The third pillar is the micro-insurance agency products. Longitude Finance serves as a representative of major insurance companies. It has partnered with a total of 27 insurance companies among them: Jubilee, Britam and Heritage.Under insurance, there are two categories of products: individual products and corporate products. Individual products include: domestic insurance, travel insurance, motor insurance, life insurance, medical insurance and personal pension plan. Corporate products include: group life insurance cover, group credit life cover, group mortgage protection cover, group pension cover, group person accident cover, marine and aviation covers.
Finally, Longitude Finance offers capacity building and training to their clients. “Most SMEs fail to reach their sixth year of operation due to lack of knowledge on how to handle certain challenges within the business. Our model entails capacity building and training where we hold bimonthly training sessions for our customers.” Among the topics taught during these sessions include: record keeping, compliance to regulations, personal health and how to leveraging on ICT to make businesses grow further. During these sessions, successful entrepreneurs are invited to share with trainees their journeys which in most cases encourage them to persevere even in loss making periods.
Its competitive edge?
Walking the journey with the customers is the most appealing aspect of Longitude Finance. The follow up services offered to customers after they have acquired financial services go a long way in ensuring that their businesses grow. This is of course enhanced by the bimonthly training sessions that Mr Monari attests are always well attended. “These training sessions are free of charge and our customers are always eager to attend as they are transformative.”
Longitude Finance has affiliations with various local and international organisations which are highly beneficial to their customers. Some of these organisations include the British Chamber of Commerce, KNCCI, KEPSA and The Norwegian African Business Association (NABA). “These organisations come in handy in providing partnerships to our clients since most of them are up to uplifting SMEs,” enthuses Michael. These partnerships act as conduits for expanding markets for small businesses.
Even with the desire to avail a better environment for SMEs, the micro-lender has had its fair share of challenges. One of them is that there is more demand for the services offered than they can supply due to need for more finances. Despite this challenge, there is opportunity for growth. “We are looking to have a presence in every county in the next 3 to 4 years and afterwards venture in the East African region.
There is a remarkable improvement of infrastructure in Kenya presenting new opportunities every day. However, as Mr Monari observes, access to capital is critical if these opportunities are to be tapped. The various factors interplaying in banking sector such as the capped interest rates slow down lending. Credit only institutions therefore play a great role and their impact ought to be determined, recognised in the Financial Act and supported.
Client testimonials for Longitude Finance
Joshua Muoki a bookshop owner at Adams Arcade Nairobi is a customer of Longitude Finance. After running his business for one and a half years, an agent from Longitude Finance approached him to inform him about the benefits available at their organisation. “I realised that what they were offering was far much better than what the conventional banks offered. From them, I raised more capital and added my stock to a point of opening a new branch where I employed people to help run the business.” Muoki has had a great experience doing business with Longitude Finance due to the simplicity of their structures and the additional benefits such as training. “There are no bureaucracies involved, when one requests for a loan is processed within one or two days the loan is processed and ready.” Muoki hopes to keep expanding his business and employ more people.
Kelvin Omondi is another beneficiary of Longitude Finance. He is a dealer in second-hand clothes in Kibera. “I was first employed earning Sh200 a day before deciding to start my own venture. When I sought to get capital to start the business, I decided to work with Longitude Finance and I am glad I made that choice. Unlike other financiers, Longitude Finance accepted to finance my business without collateral despite the fact that they do not take deposits. I have also greatly benefitted from the training they organise for us every two months. I am now aware of the need to keep records and comply with regulations.” Omondi has plans to expand his business and employ a few of the jobless youths in his neighbourhood.