Today, many people in Kenya are still not able to access financial services. While the formal banking sector has grown in recent years, there are still over thirty percent of Kenyan adults without any form of bank account. Microfinance institutions (MFI) provide an alternative to this trend. MFIs offer small loans to low-income individuals and families with the goal of advancing their economic well-being.
One issue with MFIs is that they can charge high-interest rates on their loans. This creates a problem because it discourages clients from repaying their loans and also makes it difficult for MFIs to make money. Here’s where the best MFI’s in Kenya come into play! They offer low-interest rates so that both clients and MFI’s can benefit from the relationship.
What is microfinance?
Microfinance, also known as microcredit, is a financial service that provides small loans to low-income individuals and families. The goal of the loans is to advance their economic well-being. Microfinance institutions (MFI) provide an alternative for people without a bank account. MFIs offer loans to people with a low income who often have difficulty receiving credit from formal banks due to the lack of collateral or security.
The best MFIs in Kenya With The lowest interest rates
So, what is the best MFI in Kenya for the lowest interest rates? There are many MFIs in Kenya that offer low-interest rates. But there is one MFI that stands out as having lower interest rates than the others: Mwananchi Credit LTD. Mwananchi Credit LTD has an annualized rate of 20%, while the rest are still charging an extremely high annualized rate of up to 200%. That is X10 costly, and unbearable to pay back. Mwananchi Credit is the largest microfinance institution (MFI) in Kenya.
If you’re looking for a lower interest rate, Mwananchi Credit LTD might be your best bet!
How does microfinance work?
How does microfinance work? In addition to charging high-interest rates, MFIs also have a difficult time making money due to an issue called “churn.” Churn is when clients stop repaying their loans and the MFI has to chase them for the money. This process can be costly and time-consuming.
What many MFI’s in Kenya are doing is trying a slightly different approach by offering low-interest rates. This reduces churn and encourages clients to repay their loans. Additionally, because MFIs charge less interest, they’re able to make more money from each client.
For example, if an individual borrowed KES 100,000 from a MFI with a 12% interest rate over three years, then he or she would end up paying back KES 148,741 at the end of that period. If that same person were to borrow the same amount at 9%, then they would pay back KES 124,890 at the end of three years. That’s almost 10% more!
Why are high interest rates a problem?
It is a problem because it discourages clients from repaying their loans and also makes it difficult for MFIs to make money.
High-interest rates discourage people from repaying their loans and make it difficult for MFIs to make money. It is especially important for low-income individuals who may not be able to afford high interest rates to invest in MFIs as they can provide an alternative means of accessing financial services.
Why is this important to me?
Microfinance institutions are important because they offer a way for people to repay their loans and maintain sustainable growth. They also offer low-interest rates so as to not discourage clients from repaying their loans.
A high-interest rate on a loan is one of the toughest barriers to overcome in Kenya. Fortunately, there are a number of microfinance institutions in the country that offer loans at lower interest rates. The World Bank estimates that Kenya hosts more than 5,500 MFIs, so it’s natural to have a few standouts. Below are the top MFIs in Kenya for low interest rates, based on current reviews and ratings.