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Personal finance institutions in Kenya

Kenya has come far from getting credit from a bank that was only accessible in large urban areas. Now you can get credit from your phone instantaneously. This is due to the advancement of the Kenyan financial infrastructure over the last two decades. This has opened up access to credit across the entire country giving millions the means to elevate themselves from poverty

In today’s financial marketplace, financial institutions exist to offer a large pool of services including deposit, lending, and investment vehicles. Some institutions focus on serving the retail and consumer markets, while others focus on the enterprise market and significant investments.

Why Financial Institutions Are Important

Financial institutions are important because they play a crucial role in the economy by providing various financial services, including lending money, accepting deposits, and facilitating the transfer of funds. These services help to channel savings and investment into productive economic activities, which can help to create jobs, support economic growth, and improve living standards.

Financial institutions also play a vital role in the financial system by acting as intermediaries between borrowers and lenders and providing a mechanism for managing risk. They can help to diversify risk by pooling funds from many investors and lending them out to a variety of borrowers. This can help to reduce the impact of individual defaults or other financial shocks, which can help to stabilize the financial system and promote economic stability.

Finally, financial institutions are important because they provide consumers and businesses with access to a range of financial products and services, such as checking and savings accounts, credit cards, and loans, which can help people to manage their money and achieve their financial goals.

This article will focus solely on institutions that offer retail services more specifically those that offer personal loans. Before we get on with the list, let us look at the role the central bank plays in determining the cost of your personal loans

1. Central Bank

The Central Bank of Kenya has been mandated by the national government to regulate the financial market in Kenya. The central bank plays a crucial role in the oversight and management of banks across the entire country. The retail market rarely interacts with the central banks as it acts as the banker to other bankers. Yet its decisions affect the entire financial sector. The interest rate is the benchmark for the cost of a loan in Kenya. The changes in the interest rate affect the interest your pay on any loan in Kenya.

2. Retail Banks

Retail Banks are traditional financial institutions that offer deposit accounts and lending in Kenya. Retail banks in Kenya typically offer a range of products and services, including checking and savings accounts, loans, credit cards, debit cards, money transfer services, and investment products such as mutual funds and certificates of deposit (CDs). Some banks may also offer online and mobile banking services, as well as insurance products such as life, health, and car insurance. It’s worth noting that the specific products and services offered by retail banks in Kenya may vary from one institution to another.

3. Internet/mobile Banks

Internet banking is a service offered by banks that allows customers to access their account information, make transactions, and perform other banking tasks using a mobile device such as a smartphone or tablet. Mobile banking apps are typically available for download from app stores and can be used to check account balances, view transaction history, transfer money between accounts, pay bills, and more. Mobile banking is convenient because it allows users to access their accounts and perform banking tasks from anywhere, as long as they have an internet connection. It can also be more secure than traditional banking methods because it often includes features such as two-factor authentication to protect against unauthorized access.

Internet Banks are a new phenomenon that has arisen with the widespread of Internet services. Internet bank is a broad term since all financial institutions offer Internet financial products through eir websites or apps.

Internet banking has seen the rise of mobile loan apps that lend directly to the consumer without a bank account. Helapesa is an Internet financial product. It offers loans to government employees through an app. The loan is based on the checkoff system. Other apps offer various loans depending on the demography they are targeting.

4. Saving and Loan Associations

These are community-based financial institutions that are mutually owned by their customers. In Kenya, we call these institutions SACCOs. SACCOs pool together contributions from members, which are collected monthly, to provide credit to their members at below-market rates. The focus is on offering normal banking products like deposits, checking accounts and personal loans.

One advantage of SACCOs compared to traditional retail banks is that they are owned and controlled by their members, rather than by shareholders. This means that the profits generated by SACCO are returned to the members in the form of dividends, rather than being distributed to shareholders. As a result, SACCOs may be able to offer higher dividends on deposits and lower loan rates to their members.

Another advantage of SACCOs is that they may be more accessible to certain groups of people who may not have access to traditional banking services. For example, SACCOs may be more prevalent in rural areas or in communities that are underserved by traditional banks. This can make it easier for people in these areas to access financial services and improve their financial well-being.

5. Credit Unions

Credit Unions are based on the same principle as the SACCO but are smaller and considered non-profit organizations. A credit union is a type of financial institution that is owned and controlled by its members. It is a non-profit organization that provides a range of financial products and services to its members, including checking and savings accounts, loans, and credit cards. Credit unions are often smaller and more community-oriented than traditional banks, and they often offer better rates and lower fees to their members. One of the main differences between credit unions and banks is that credit unions are owned and controlled by their members, who are also the customers. This means that credit unions are not driven by profit, but rather by a common goal of providing means to cheaper credit to its members.

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