By Gitahi Ngunyi
Following our recent story on the launch Aspira app by Mauritius consumer finance firm, CIM Finance Group that allows Kenyans to buy domestic goods on credit, we have received overwhelming inquiries about the app and why it is idea for Kenyans seeking quality household items.
Money and Markets spoke to CIM Finance Kenya Managing Director Yoeal Haile seeking to understand how the app works as well as the extent of borrowers’ protection.
Below are the eight crucial things that Kenyan subscribers need to know before they get on board the financing app.
M&M: What is CIM Finance and why did you pick Kenya as a market to launch Aspira?
CIM Finance Group is a consumer finance business that was founded 31 years ago in Mauritius. In Mauritius where the group is domiciled, the firm offers a wide range of businesses including credit cards, product financing, forex trading, leasing and factoring.
Product financing is the flagship business the firm launched into the Kenyan market. On this business line, CIM Finance Group has 250,000 active subscribers in Mauritius.
CIM Finance Group is a US$400 million business listed on the main market of the Mauritius Stock Exchange.
The Mauritius market is similar to Kenya’s in terms of access to formal banking services. Like in Kenya, most people in Mauritius do not have access to banking services.
Two years ago, the CIM Finance board took a decision to explore other markets. The firm settled on Kenya after an initial market survey showed that Kenya has a well-established retail sector.
For 18 months, the firm established its Kenyan operations and embarked on piloting its product financing app, Aspira.
M&M: What is the business model behind Aspira ?
In our model, we partner with retailers in a framework that allows subscribers to Aspira to get household goods such as furniture and electronics. CIM Finance then pays the retailer. Later subscribers pay CIM finance the value of the goods with a small interest.
The thing to note with our model is that we do not give money to our customers, but we pay a retailer for the goods picked by our customers.
M&M: Kenya’s retail sector has had five years of turmoil that has seen two of the biggest supermarket collapse under the weight of cash flow pressures. How can you guarantee that Aspira subscribers will get the goods they would like to acquire through the app?
When we set up shop in Kenya, our first criterion was to pick retailers with a long history in the country. Besides, there are other things we look for before we partner with a retailer. For example, we evaluate a retailer’s relationship with customers. We also check whether a retailer has a reputation of honouring manufacturers’ warranties. This is essential because we don’t want customers to come back to us saying they are repaying a loan for a faulty product.
Besides what we look for, our business is going to help the retailers a lot. We know that they try to understand their customers’ needs using traditional means such as customer surveys and reaching out to customers through merchandisers. But because we are a data driven business, we help the retailers understand their customers in a more efficient and cost effective way.
M&M: You launched the app at a time when lending rates in banks have been capped at 13.5 percent annually. At the same time, Kenya has seen an explosion in the fintech innovations in the last five years. Today, banks and non-bank finance businesses are launching mobile apps that allow customers to borrow at relatively lower rates than the four percent per month you are offering in Aspira. What would push a potential borrower to Aspira when they can get cheap loans from banks and quick loans from Apps such as Tala and Branch?
We are aware of the explosion of fintech in Kenya. But my own feeling is that the fintech innovation has crowded the credit market mainly because they are driven by banking groups. This is good for us because it leaves us with an opportunity to grow in the financing space without much competition.
What we are offering through Aspira is not anything we have seen in any part of the world. Product financing is an area that banks are particularly careful not to venture into because of the inherent risks.
We know that the interest rates in the country are capped and would appear to be lower than what we offer on product financing. But the truth is, the people that are considered risky to the banks are not getting credit because of the caps. It is a documented fact, that Kenyan banks are lending less to the small borrowers. These people who the banks are not lending to are our target customers.
And by the way, the four percent we charge on our financing is only for first time users of Aspira. After the first product financing, the interest rate on repeat financing is based on the customers’ behavior which is analysed through an algorithm.
M&M: You say Aspira is a product financing app. How are you different from the traditional hire purchase business which Kenyans are familiar with?
This is a tough one but I will give it the best shot. We consider ourselves as a product financing business in Kenya at the moment. To understand this, it is important to remember, that we do not have goods. We also do not give customers money to purchase goods of their choice. What we do is that we allow subscribers to go to retailer and identify goods they want to acquire. . Once a subscriber has identified the goods, we pay the retailor.
The hire purchase businesses stock goods while we don’t.
M&M: You upper limit financing to subscribers is Sh350,000 while in some banks, customers can access up to Sh3 millions on mobile apps. So why should someone choose Aspira while they can access higher financing from banks?
Look at it this way. The person who can qualify for the Sh350,000 is a guy who can access formal credit from a bank. Probably, he has acquired a loan from a bank to buy an apartment. However, this guy needs extra cash to furnish his house.
The truth is banks can’t help furnish his apartment so soon after he acquired the apartment through a loan because credit approvals take quite a long time.
Where the banks offer loans of over Sh1 million through mobile apps, those who qualify usually are business owners seeking capital to expand.
M&M : So you are not a hire purchase business. However, you still finance customers to acquire domestic goods. Kenyans generally fear product financing businesses because it is uncontrolled and interest payments can spiral more than three times the value of the products they acquired on credit. In cases where they are unable to make repayments, hire purchase customers have lost the goods acquired on credit and all money they have paid in installments. Why should Kenyans trust that you will not treat them the same way hire purchase companies have treated them in the past?
We don’t believe that behaving like loan sharks is a good business model. It sends customers away.
In our business model, financing that we offer to subscribers is insured against death and disability. This means that in the event of such eventuality the insurance cover will compensate us.
Importantly, we are transparent on both interest rates and monthly installments that customers are expected to pay, leaving no room for hidden charges.
In the case of default of payment during the agreed time frame, the customers are guaranteed that their loans will not continue earning interests past the agreed repayment period.
In Mauritius where the app was first launched, this approach has ensured that our customers keep using the app to buy more goods. Like in Mauritius, we are confident that our services will make Kenyans to do more than one transaction on the app.
The truth is, the hire purchase and product financing business has been given a bad name by players who practice unethical business models. However, at CIM Finance we see this as an opportunity to clean up the financing space by doing business based on strict ethics.
M&M: It is now six weeks since you launched Aspira in Kenya. How is the uptake so far?
The uptake is generally good because we have just recently launched in Kenya. But we expect an explosion in the next two months because we will be doing activations in shopping malls every so often.