Shylocks in Maasai Shuka Feed Off Fintech Loan Defaults

Every day at dawn and just before sunset an interesting routine now takes place in Kisumu city and satellite townships.

Groups of “Maasai” men draped in their traditional shuka visit micro and petty traders just as they are opening business, handing them some cash before leaving only to return before the merchants close their premises for the day.

During the visits, money changes hands between traders and the Masai men who offer them informal loans depending on one’s ability to repay.

And this “Maasai loan” craze is quickly building among traders, including boda boda (motorcycle taxis), shoe shiners, hairdressers and barbers, street vendors and small shopkeepers.

Pushed out of formal credit systems for their perceived high risk and coupled with the inconvenience of standard blacklisting on Silicon Valley-fueled fintech loans, traders find solace from the Masai shylocks that come without conditions such as mandatory collateral, arduous paperwork or even listing with the the various credit reference agencies (CRBs).

“Dealing with the Maasai makes the most sense for many small traders right now. I use a rented boda boda, so every morning I take a Sh500 loan from them to buy fuel, which I use to ferry passengers and deliver around town. I then refund the amount with an interest of Sh75 at the end of the business,” says John Otieno, a boda boda operator based in Manyatta, a low-income area in Kisumu.

“I find this hassle-free and convenient as I am already on a CRB blacklist for defaulting on a digital loan and no one will consider me for more loans in the formal channels, but I need money to continue operating,” he adds .

Official data from the Central Bank of Kenya (CBK) indicates that 7 million of the 19 million accounts listed with CRBs have been in default, including 4.2 million related to mobile phone loans.

The high and growing number of blacklisted loan accounts means that the chances of borrowing are severely threatened for millions of Kenyans, including Otieno, who may be looking to grow or finance their businesses.

Small businesses and traders have also borne the brunt of limited funding from banks, which considered them a high risk of default.

Not even a government-backed credit guarantee scheme (CGS) seems to have cut off small and medium-sized enterprises (SMEs).

Data shows that a total of 2,190 SMEs received Sh3.3 billion under the government-backed CGS in the year to June 2022 as the government’s plan to deter petty traders took off at a slow pace.

CGS encourages banks to extend credit to borrowers they would otherwise reject, in the confidence that they will be compensated in the event of default.

National Treasury said that of the 2,190 facilities issued under the CGS in the 2021/22 financial year, small enterprises received 1,321, medium enterprises received 248 and micro enterprises received 561.

In terms of the value of facilities, small enterprises received Sh2.29 billion, medium enterprises Sh592.5 million, and micro enterprises received Sh431.9 million.

Daunted by the depressed chances of getting mobile and bank loans, many small traders in western Kenya are now finding solace in the shylocks, who have stepped in to keep their businesses going.

Traders say the Masai shylocks offer them debt service options, including repayment within the same day or over 12 days, depending on one’s ability.

The loans are structured so that the interest burden is between 15-30 per cent, depending on the size of the business.

“Traders have a choice of repayment terms, which are up to 12 days and with an interest rate of up to 30 percent and a processing fee of around 10 percent. For example, if you want Sh4,000 from the Maasai to be paid over 12 days, they will give you the money minus Sh400 as a processing fee, then you will repay Sh400 per day for 10 days,” said Christopher Otieno, a hairdresser in Kisumu. .

The Masai Shylocks do not require collateral, but rely on the goodwill of their trusted clients who refer their borrowers to them.

“When you refer someone to the Maasai, you automatically become a kind of guarantor. The scheme thrives on goodwill because traders need the money and they don’t want to destroy relations with the Maasai, reveals Otieno.

Despite the high interest costs, the shylock business in Kisumu has become very vibrant so that, apart from the Maasai, it now attracts creditors from the nearby cash-rich Uasin Gishu, Kericho and Bomet counties who use part of their income from cash crops such as tea and corn to earn a little.

“Young girls from Kericho and Uasin Gishu go around estates and Kisumu central business district lending money to small businesses,” confirmed a trader, on condition of anonymity to avoid jeopardizing their ties with the Shylocks.

Kevin Mutiso, chairman of the Kenya Digital Financial Services Association of Kenya, said digital lenders remained committed to supporting businesses through lending.

“Most of our borrowers are business groups that service their dues quickly. Our algorithms show that loans can be put at risk and we act responsibly. Those who, for example, take out loans for gambling are known to us and we cannot continue to lead them to damage, he said.