Author: Sreecharan Kunutur
02nd Nov 2020
FINTERRA in its pursuit to expand Cash WAQF operations, has signed a definitive term-sheet with HAL Capital Limited, Kenya to acquire sizable equity stake in HAL Capital’s Islamic Micro-Finance operations in Kenya. HAL Capital is servicing over 45,000 SME and micro FMCG retail business in Kenya, lending funds based on Commodity Murabahah principal of Islamic Finance. Murabahah based financing is one of the most popular financing modes in Islamic banks today (AAOIFI; Ayub, 2007), and the same can be adopted while investing Cash Waqf. HAL Capital is expected to expand its Islamic Micro-Finance operations into Tanzania, Uganda, and Ethiopia in the next 12 months, with the new capital and technology know-how from FINTERRA.
East Africa has become a hotbed of innovation in financial services. Kenya is fast catching up with South Africa to become the country with the most comprehensive provision of financial services on the continent. Moreover, the business models of champions such as Equity Bank and M-PESA have been studied worldwide.
Well-established and increasingly taken for granted, micro-finance has been a ground breaking innovation itself. Before the ascent of microfinance, people who did not qualify as banking customers were excluded from financial services. Exclusion means that people must store and transfer value in physical assets, such as cash, jewellery, or livestock. It means that people cannot invest, as they cannot borrow. Rural households may, for instance, be unable to buy fertilizer if savings have been destroyed or liquidated to treat a family member’s illness. The absence of access to financial services often translates into hardship and misery. Microfinance was born when the insight surfaced that credit techniques must be adapted to take account of the necessities of low-income households. Traditional banks require “hard” information from clients, such as audited statements, asset appraisals, tax receipts, and investment plans, and insist on hard collateral against a loan. In contrast, a microfinance credit officer analyses the cash flows generated by a household’s (often numerous) microentrepreneurial activities. Close and frequent contact between lender and borrower is key. More-over, credit officers analyse the whole social and economic environment in which microentrepreneurs operate.
“Mom and pop” shops of the above mentioned microentrepreneurs play a critical role in developing economies around the world. In Kenya, where they are known as “dukas”, these small retail shops supply roughly 80 percent of consumer goods and are often run by women or families. But dukas face many challenges to efficiency, resulting in lower earnings for their owners.
Finance for these Dukas is very scarce in East Africa despite the sector’s huge potential. Many recent attempts by national governments to provide credit have been marred, and commercial banks have almost entirely withdrawn from providing loans to the sector following the financial crisis in the early 1990s. In this context microfinance has emerged as a potential solution by providing credit and savings services to the multitude of dukas that make up the major sectors in East Africa. NGOs have supported microfinance institutions in East Africa since the late 1980s based on methodologies adapted from Asia that reduce the costs and non-repayment risks associated with small loans through group-lending (i.e. peer selection of borrowers and peer pressure for repayment). Moreover, since the early 2000s, the governments of many East African states (including Kenya, the United Republic of Tanzania and Uganda) have made microfinance a pillar of their development strategies.
In this ripe moment, FINTERRA recognised the opportunity and has decided to acquire a sizable stake in HAL Capital Limited based in Nairobi, Kenya. FINTERRA will add value to HAL’s existing operations via the provision of its Blockchain based FinTech solution for Islamic Micro-Financing, and AWS Cloud Infrastructure. FINTERRA in partnership with HAL will introduce new product’s specifically catering to dukas, enabling them to grow their business exponentially by using HAL Capital Islamic SME microfinancing services. HAL Capital is Kenya’s first Islamic, shariah compliant SME microfinancing product that promotes transparency of shariah compliant Islamic finance and technology use by providing 24/7 mobile app based microlending.