How Digital Lenders Raise Capital

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    File image of an individual scrolling through a mobile app loan
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  • Digital lending in Kenya’s credit market has spread rapidly over the last five years, with different players both local and international setting up shop in the country.

    Unlike traditional lenders such as Banks, Microfinance or even deposit taking Sacco’s, digital lending platforms are non-deposit taking, begging the question, where do they get the money to lend out to the masses?

    Digital lenders association of Kenya (DLAK) chairperson, Kelvin Mutiso, in an interview with Kenyans.co.ke sought to explain how digital lenders raise their capital.

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    Over Ksh 37 billion fake currency seized on May 4, 2021.
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    He explained that among the biggest financiers of digital lenders are investors through the capital markets as well as other wholesale funders.

    “How do you source for funding in any market?” he posed.

    “You go to the capital market, issue a paper, talk to potential investors or talk to the banks."

    Mutiso also pointed out that Kenyan banks tapping into the digital lending space has forced players to seek alternative funding from other investors at the international level.

    “In this market, because the banks are already in our space, we get a lot of our money from international financiers," he added.

    His sentiments were similar with those of Annstella Mumbi, the country growth manager for Tala, a digital lending platform.

    Mumbi noted that some of the key ways that digital lenders tend to raise capital include Venture capital as well as Debt financing through other like-minded investors.

    “For us its two parts, one from our investors. As you are aware, we are a venture funded entity and we just raised Ksh60 billion Kenya series e-fund, number two, is debt funding through other investors in the market who share the same goal as us,” she explained.

    DLAK Chairperson, Kelvin Mutiso, also explained that digital lenders unlike most financial institutions, did not have a baseline capital requirement before starting their operation.

    “There were no minimal capital requirements, all you needed to do is be compliant with the other stuff such as business registration services and tax compliance,” he noted.

    With the president now having signed the 2021 Central Bank of Kenya amendment bill that gives Central Bank the mandate to regulate operations of digital credit providers, many are waiting to see the numerous changes that follow.

    Central Bank of Kenya (CBK) Governor Patrick Njoroge with his deputy Sheila M’Mbijiwe in Parliament buildings on February 26, 2019.
    Central Bank of Kenya (CBK) Governor Patrick Njoroge with his deputy Sheila M’Mbijiwe in Parliament buildings on February 26, 2019.
    Daily Nation