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Pesa Pata: Micro-credit secured by trust alone – Money Matters

August 16, 2012 No Comments »

Pesa Pata micro-credit is soon to be the next big mobile money story in Kenya, and it could very soon expand throughout the continent.  Pesa Pata, Swahili for ‘get money’, is an innovation by Paddy Micor Investments which has an excellent track record for providing unsecured loans to small business and making a profit at it.

Pesa Pata is Paddy Micro Investment's attempt to dominate the micro-credit business in the growing mobile money space in Africa.  It targets poor clients who do not have bank accounts, yet need quick, micro loans for their business or personal needs.  

Instant Micro-credit

Here is how it works.  A vender, normally a small shop or kiosk owner, gives a client they trust a scratch card worth between Ksh 250 ($3 USD) and Ksh 5,000 ($63).  The client scratches the card to reveal a secrete number that they load onto their mobile phone and are credited a short-term loan on a Safaricom's M-Pesa account.  They must repay the loan principle, plus a five to ten percent interest, in less than thirty days.  The kiosk owner derives income from the interest. 

The Pesa Pata model is completely dependent on the level of trust between the kiosk owners and their customers, which is proving to be very successful. 

Micro-credit for those needing it most

“At times, people need quick money but they are not able to go to a bank or micro-finance for a loan and I can say Pesa Pata is filling that gap,” says Joyce Wangui who runs Paddy Micro Investments along with her husband Peter Nthiga.  She is proud that although the product is less than six months old, it has attracted more than 2,000 kiosk owners who are eagerly becoming agents to make small loans to their customers.

East African kiosk owners have been extending credit to their customers for decades.  When someone needed bread, eggs, or milk but did not have the money to pay, the shop owner would give them the products and write down how much they owed in a book to be paid at a later date.  The kiosk owner can now give the client credit in the form of a Pesa Pata card, receive payment for their goods and collect interest on the loan. 

Pesa Pata growing rapidly

Pesa Pata is growing so quickly in popularity that Wangui has set a goal to reach seven million clients by December 2012.  She will not say how much Paddy Micro Investments has sunk into starting up Pesa Pata for manufacturing the scratch cards, marketing and building software.  She does say, “We expect to break even after six months of operation.”  After that, “We see ourselves going to the rest of Africa. Across the continent, small entrepreneurs and low income earners face the same challenges. In the next two years we will be all over Africa.” There is definitely a market for the product.  More than eighty percent of the population of Africa do not have bank accounts and could benefit from small, short-term loans.

Like all startups, there are a few hurdles to get over.  Right now Pesa Pata is at the mercy of M-pesa. When the Safaricom mobile payment system goes down, so does Pesa Pata.  Also, borrowers must pay a fee when they acquire cash from their M-pesa account with Safaricom. 

Wangui and Nthiga are currently building a platform that will eliminate M-Pesa from the chain.  “We want to build our own platform so that when you get a Pesa Pata card on credit and load the money to your phone, you will be able to cash it at the same kiosk. The M-Pesa withdrawal charges our clients have to pay now are unfair and a big challenge.”

The Pesa Pata innovation is not only making money available to poor, unbanked people and making money for kiosk owners and Paddy Mico Investments, it is also making a major statement that should be heard by all in the investment community.  Africans are trusting Africans and making a profit at it.  

 

Richard Chowning is director of Africa Mentor, a full service agency that facilitates the activities of entrepreneurs and non-profits who are initiating or revitalizing projects in Africa through orientation to African culture and society as well as logistics and pairing entrepreneurs with investors.

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