Is this the end of the Shylock? MTN launches Microloans

August 9, 2016 in Business, Companies, Finance, Financial Services, Infrastructure, Technology & Telecoms by Editor

KAMPALA, AUGUST 09 – Is this the death knell for loan sharks? MTN Uganda today pulled the veil off its long-anticipated savings and loan product, an industry first that that it will be running in partnership with Commercial Bank of Africa CBA.

Offering instant short term loans that will take as little as 6 seconds to process, the telecom operator is targeting as many as 20 million subscribers, mostly in Uganda’s unbanked rural countryside.

Capped at a maximum of Ushs 1 million payable within a 30 day window, the loans will attract interest rates ranging from 9% depending on volume involved and credit history of the borrower. This compares with the rates charged by bootleg money lenders whose rates can go as high as 30pc per month against solid collateral.

Individual credit limits will automatically be calculated by the systems algorithms based on the borrowers transaction history of both airtime and mobile money.

Although MTN’s main mobile money escrow account is resident with Stanbic Bank, sources familiar with the telco’s plans tell 256BN that the new product will be operated in conjunction with a minimum of three correspondent banks – a large tier one operator such as Stanbic, a medium scale one and a small player hungry for growth. CBA fits the latter description and  was probably selected because of its experience offering a similar service for Vodacom in Tanzania.

The development is however momentous for Uganda’s financial sector which has been seeking tools for financial inclusion in a market where there are less than 5 million bank accounts for  a population that is now estimated at 40 million. It is also a significant lever however for commercial banks that in an effort to rationalise their cost structures, have been looking at ways of moving non-essential transactions out of the banking hall.