EFFECTIVENESS OF CREDIT MANAGEMENT SYSTEM ON MICRO CREDIT

PERFORMANCE: CASE STUDY OF EAST AFRICA COMMERCIAL BANKS AND

MOBILE OPERATORS

by: Eveque Mutabaruka

Student at Atlantic International University in School of Engineering

(Doctorate in Information Technology)

Electronic copy available at: https://ssrn.com/abstract=3855367

TABLE OF CONTENTS

TABLE OF CONTENTS ..................................................................................................................... 2

1. INTRODUCTION .......................................................................................................................... 3
2. CREDIT MANAGEMENT............................................................................................................ 4
2.1 Credit Policy (Terms & Limits)........................................................................................ 5
2.2 Credit Risk management .................................................................................................. 5
2.3 Credit Collections and Communication ....................................................................... 6
2.4 Credit Manager Role .......................................................................................................... 7
2.5 Credit insurance ................................................................................................................. 7
3. MICRO CREDIT ........................................................................................................................... 8
3.1 Micro credit History ........................................................................................................... 8
3.2 Micro credit Characteristics and Terms ....................................................................... 8
3.3 Micro credit key players ................................................................................................... 9
4. MICRO CREDIT PERFORMANCE ........................................................................................... 9
4.1 M-Shwari ............................................................................................................................. 10
4.2 KCB – MPESA ................................................................................................................... 11
4.3 M-KESHO ................................................................................................................................. 11
4.4 MoKash (Rwanda) ............................................................................................................ 12
4.5 M-Pawa................................................................................................................................ 13
4.6 MoKash (Uganda)............................................................................................................. 13
4.7 Performance Analysis..................................................................................................... 14
4.7.1 Credit Pricing ............................................................................................................ 14
4.7.2 Credit Terms and Conditions ................................................................................ 15
4.7.3 Credit Scoring and Risk ......................................................................................... 16
4.7.4 Credit Monitoring ..................................................................................................... 16
4.7.5 Payment Collection.................................................................................................. 16
5 CONCLUSION............................................................................................................................ 17
6 REFERENCES ........................................................................................................................... 17

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1. INTRODUCTION
We have different definitions of credit term based on contextual use. We need to
ensure proper understanding of this term “Credit” and right context use before dive
deep. They are three mainly used definitions of credit term: Firstly, credit is a
contractual agreement in which a financial institution provides funds to a borrower,
then the borrower will repay within agreed repayment schedule with interest; Secondly,
credit also refers to the credit history of an individual or a company, this is to define
score for the person before providing credit; Thirdly, balance sheet management
credit is referred as in decrease or increase of assets or liabilities respectively.

Before examine subject in details of effectiveness of credit management system on

loan performance is better to clearly define our context of use for this term “Credit’.
The credit term in this document will be mostly common-used and defined as a
contractual agreement between a lender and a borrower. The Credit management is
the process of granting credit, terms and conditions definition, compliance with credit
policy, and then payment on due date. The core business for financial institutions is to
improve revenues and profit by facilitating sales and reducing loss and financial risks.

This document will assess the effectiveness of credit management principles and its
impact on loan performance for specific type of loans “micro credit”. The case study is
micro credit in East Africa especially provided by commercial banks in partnership with
mobile network operators. The purpose of the document will be mainly to assess the
applicability of credit management principles to achieve better performance in micro
lending. This document target sample is East Africa commercial banks in conjunction
with mobile operators providing online micro credit to mobile money subscribers and
commercial banks ‘customers. The development of this academic research will focus
on three keys areas as described below:

1. Credit Management Principles: This section will clear definition of credit

management terms and principles for better understanding before discussing
its impact on micro lending.

2. Micro Credit Global: This section will background and nature of online micro
credit globally before discussing East Africa case study.

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 3. East Africa Micro Credit Performance: This section will provide analysis of
credit management principles applicability in micro credit and its impact on loan
performance in East Africa countries

2. CREDIT MANAGEMENT
The credit management has number of areas to focus on, but mainly managing credit
risk encompasses a lot of them to avoid financial loss. Defining what needs to be done
in order to assure proper credit risk management in place, is becoming increasingly
complex day-to-day due to industrial factors, knowledge, etc …. In addition, the
technology has brought in more flexibility by providing online scoring capability, which
may cause more exposure to financial institutions. Managing credit risk is a complex
multidimensional problem and as a result there are a number of different quantitative
and quantitative approaches in use (Aleksandra, 2018).The key element is to
understand the behaviour and predict the likelihood of particular borrower defaulting
on their obligations.

The following key areas will be described in this section for better understanding and
appreciation credit management principles.

- Credit Policy (Terms & Limits)

- Credit Risk Monitoring & control
- Credit risk assessment and ratings
- Credit Classification
- Collection of payment, method and resources
- Customer incentives (cash discounts)
- Maintenance of the Sales Ledger (updating customer data file)
- Credit insurance
- Legal action and debt enforcement
- Reporting & General Ledger
- Reconciliation & Recovery
- Consumer Credit Law
- Collection and Communication means

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2.1 Credit Policy (Terms & Limits)
The credit has cost and risks associate to it, that’s why drafting policy with terms and
limits set is very key exercise for financial institution, to set guidelines on customer
limit calculation and payment terms. The credit policy is guiding book with assessment
criteria and rules for the credit management, in order to protect both lender and
borrower interests. The appropriate background checked of loan applicant is highly
needed before issuing an offer letter. Financial institutions will assess various
supporting documents of the applicants for financial support such business plan,
security facilities, payment capability, company policies, etc…

The highly market competition is causing financial institutions pushing for sales
growth than assessing higher credit risk. The credit policy can help protect you against
defaulters to maintain your liquidity. The following are crucial to be included in credit
policy but not limited:

 Customer segment eligibility

 Collection terms
 Credit qualifications,
 Credit limits
 Credit terms
 Credit overall objectives (stated criteria and ratios)
 Credit staff and others responsibilities.
 Key relevant reports
 Key relevant meetings and committees
 Etc …

2.2 Credit Risk management

There is potential that a borrower can fail to pay the lender (Financial Institution), the
probability of failure to fulfil borrower’s obligations as per agreed terms creates credit
risk. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a
loan or meet contractual obligations. The credit risk management is to maximise a
bank’s risk-adjusted rate of return by maintaining credit risk exposure within
acceptable parameters (Investopedia, 2021). The credit risk management has to have
an oversight and management of the entire portfolio as well as individual credits to
ensure business continuity. The effective management of credit risk is a critical

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component and essential to the long-term success of any lender (financial
organisation). The credit risk management has key activities to be actively done by
financial institutions, to determine which customers may default:

- Rating: The Credit Risk Rating (CRR) measures the relative degree
of risk associated with a credit to be offered in relation with entire portfolio.
- Assessment: Credit risk assessment (CRS) dive deep compare to CRR, by
scoring customers and estimates the probability of loss resulting from a
borrower's failure to repay the credit. The credit risk management different
approaches and models can be used by even leverage technology to ease
some process.
- Monitoring: As explained in previous section credit has cost and risk
associated to it, monitoring frequently credit performance is very important
exercise. This helps the lender to proactively act on customers showing bad
signs in relation of obligations fulfilment.
- Control: The credit is served by financial institution capital and deposits funds.
The control to mitigate breaching liquidity and capital ratios is very important for
all lenders.
- Classification: During monitoring of loan performance, depending on how a
customer payment execution can move between classes. The classification
expresses the risk of payment terms and can vary depending on the
organization policy or regulators. Generally, three main classes are used
worldwide: substandard, doubtful and loss

2.3 Credit Collections and Communication

Credit & Collections Management (CCM) is a suite of integrated business applications
that extend a company's accounts receivable and accounting system to
facilitate credit management, dispute management, collections, and related business
processes (O'Brien, 2021). The CCM is very important to have it captured properly in
credit policy to mitigate and manage legal matters. Credit collection is
debt recovery process of unpaid principal, interest and penalties of credit loans from
the borrower. This can be done by internal or external partners with authority to do so.
Below, we have shared some tips in order to perform an effective collection:

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 - Clear definition and consistency of credit product and services offered
- Maintain customer experience and professionalism in communication:
- Set proper reminders of key clauses of customer contractual agreement
- Offer multiple possibilities for customer to settle including loan restructuring
- Provide clear new deadline and next actions points

2.4 Credit Manager Role

A credit manager is the responsible person of credit function to make decisions

concerning credit policy, credit risks, payment terms and enforcement actions with
their customers. This function is often combined with Accounts Receivable and
Collections into one department in some company (Bullivant, 2016). The main duties
and responsibilities of the credit manager are list below but not limited:

- Ensure proper management and control of bad debt exposure to the

organization
- Manage and Maintain strong cash flows and liquidity
- Manage organization provisioning and write-offs
- Manage corporate credit policy and set credit limits.
- Setting credit rating criteria.
- Ensuring compliance with a corporate credit policy.
- Any other duty related credit function under his/her responsibility

2.5 Credit insurance

The essence of a credit insurance contract is to indemnify the insured loans against
the financial consequences of a defined loss. In the case of credit insurance, that loss
is the non-payment of any debt by borrower. The insurance primarily protects the
entire portfolio against the loss from delayed payment. Properly used, credit insurance
can increase the total receivables value an organization is able to carry and credit
sales it can afford to take. It does this by limiting the effect of any potential bad debt
affecting organization portfolio (Bullivant, 2016).

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3. MICRO CREDIT
Microcredit is type of small amount loans which financial institution provide to
borrowers lacking physical asset or job as collateral to loans. Microfinances were the
first organizations created to provide such type of extremely small loan given to an
individual for self-employment and grow countries’ economy. The target population of
micro credit known as micro lending or micro loan is informal sector to support
entrepreneurship and fight poverty, especially from countries under development. The
modern technology and innovation in financial institution has made it possible to lend
money to informal sector without collateral and provide different means of collection.

3.1 Micro credit History

During 18th Century microcredit was introduced in Bangladesh, by Muhammad Yunus
who was a leader in social entrepreneurship, banking and economics. He founded the
Grameen Bank to provide micro loans to borrowers without collaterals. The target
customers were small groups composed mostly by women. Grameen Bank helped
millions of households to grow their lives(KHANDKER, 2021).

In 20th Century micro credit held it first session of Microcredit summit campaign in
Washington (USA) on February 1997. This campaign aimed for supplying small loans
to at least 100 million of poor households in the world until 2005. The goal was not
achieved at 100% but microcredit allowed to supply loans to 92 million of households.
The next target of Microcredit summit campaign was to provide microcredit to 175
million of households in extreme poverty until 2015. The choice of 2015 as deadline
for the new target is due to the correspondence with the term of the UN Millenium
Development Goals (MDGs) (CreditSummit, 2021).

3.2 Micro credit Characteristics and Terms

The other type of loans requires collateral or any other type of security such as job
before provide it. The microcredit is different to the rest of loan types because collateral
is not mandatory in order to provide micro loan. In some instances, the microcredit
payment is guaranteed by groups agreement in which the borrower is member of the
community as collateral. The more a barrower is paying microcredit is increasing
chances and probabilities too access to large loans as you increase your credit history
(AEB, 2021).

The following are the main characteristics for micro credits or micro lending:

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 - Lending very small funds to individuals to expand entrepreneurship.
- Borrowers tend to be low-income individuals living under developing countries.
- The groups community model is the base of most microcredit schemes in order
to create peer pressure in group for payment.
- Support skilled people to grow economy through the assistance of a small loan.
- Microcredit is provided without appropriate collateral guarantees.
- Some financial institution require savings as insurance till successful loan
payment, in case of a borrower defaults.

3.3 Micro credit key players

As stated in short history of micro credit, micro financiers come from different players
in order to grow individual or small businesses. The key players identified but not
limited, are from public, private or parastatal entities:

1. Public Institutions
2. Government Funds
3. Commercial Banks
4. Mobile Operators
5. Development Banks
6. Cooperatives
7. Microfinances
8. Other Private Institutions
9. International funds (World bank, IMF, etc …)
10. Etc …

4. MICRO CREDIT PERFORMANCE

In 2016, global reports have shown us that microcredits were paid up 98.9% rates
approximately (Investopedia, 2021). The East Africa countries (EAC) private sectors
has highly embarked the same journey of financial inclusion for non-banked in 21st
century together with other different regions. The purpose was and is to provide
population ability to do savings and access to credit especially micro credit. Kenya has
been pioneer among other EAC’s countries in micro lending followed by other
countries. As stated in previous section savings is the insurance of micro credit, the
same for our mobile based savings and loan product both will be covered. The targeted
micro credit are mobile based products co-own by both commercial banks and mobile

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network operators. In order to do loan performance analysis in relation with credit
management effectiveness, the below sample savings and lending products from
various East Africa’s’ countries:

# Product Commercial Bank Mobile Country Year of

Operator launch
1 M-Shwari NCBA Kenya Ltd Safaricom Kenya 2012
2 KCB – KCB Bank Kenya Ltd Safaricom Kenya 2015
MPESA
3 M-KESHO Equity Bank Ltd Safaricom Kenya 2010
4 MoKash NCBA Bank Rwanda MTN Rwanda 2017
PLC Rwanda
5 M-Pawa NCBA Bank Tanzania Vodacom Tanzania 2014
PLC Tanzania
6 MoKash NCBA Bank Uganda MTN Uganda 2016
PLC Uganda

Table 1: Sample Products for Analysis

4.1 M-Shwari
In 2012 Commercial Bank of Africa (CBA) currently NCBA in partnership with Mobile
Network Operator (MNO) Safaricom through M-PESA, launched a micro lending
product M-Shwari. This is mobile phone based product has helped to scale formal
financial inclusion in Kenya with both small loans and savings sub products. The M-
Shwari loan product has one-time fee of 7.5% for each and every approved loan
request. The loan repayment can be initiated by subscriber via M-PESA, or
automatically by the M-Shwari account from NCBA. M-Shwari has piqued the interest
of mobile money watchers looking for the next innovation to drive financial inclusion
globally (NAMBUWANI WASIKE, 2021).

Millions of previously poor unbanked Kenyans received the full benefits of a banking
product using M-PESA’s mobile money infrastructure via M-Shwari product. M-Shwari
is also the first large-scale product in Kenya that taps into digital information. The
product has used telecommunication data for credit-scoring decisions. The M-Shwari
product allows customers to save for the short term while also increasing access to

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credit options in the future. In addition, the product is easy to figure out and highly
engaging as it rewards customers for “good” behavior quickly (CGAP, 2021).

4.2 KCB – MPESA

In 2015 after M-Shwari has received a lot of attention, locally and internationally. Then
the first competing product, the KCB M-PESA was launched on Kenya market. KCB-
M-PESA is a loans and savings product exclusively offered by KCB Bank Kenya Ltd
in partnership with Safaricom using its mobile money service M-PESA. KCB- M-PESA
has brought in different type pf savings being fixed term, automatic savings and normal
simple savings compare to M-Shwari. The main strategic focus of the product is “Save
and Borrow on KCB M-PESA right from your phone”. Deposit your funds on fixed
deposit or target savings account, and grow your money at an interest rate of over
6%* p.a. The higher you grow your savings they higher your credit limit is increasing
(KCB, 2021)

The KCB- MPESA account is a virtual mobile based bank account opened in KCB
Kenya Ltd, by M-PESA registered customers. Depending on the customer's credit
scoring, the product KCB-MPESA allows borrowing between Kshs.50 and Kshs.1
million with 7.35% as facilitation fees. The loan repayment can be initiated by
subscriber via M-PESA, or automatically initiated by the KCB-MPESA account from
KCB Kenya Ltd. In order to qualify for a loan, all you need is to have been an M-
PESA subscriber for 6 months, then to grow your credit score save on KCB M-
PESA and actively use other Safaricom services such as voice, data and M-PESA.
(NAMBUWANI WASIKE, 2021).

4.3 M-KESHO
In 2010 Equity Bank in partnership with Mobile Network Operator Safaricom through
M-PESA, launched a product M-KESHO to link their both accounts. The main
objective was accessibility and management of funds from whichever end, being
the M-KESHO saving account in Equity to access M-PESA wallet, M-PESA Mobile
interface to access Equity saving A/C or vice versa. Customers can deposit and
withdraw money from their M-KESHO account by transferring value to/from their M-
PESA account, which they can in turn cash into or cash out from at any M-PESA outlet.
Deposits into M-KESHO are free to the customer, whereas withdrawals incur some
fees payable to Equity Bank plus the normal cash out fee payable to Safaricom. The

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M-KESHO at start the core product was a saving account, but account holders can
also tap into loan and insurance facilities (ZAKENYA, 2021).

4.4 MoKash (Rwanda)

In 2017, Rwanda was the target market by Commercial Bank of Africa (CBA) currently
known as NCBA Bank Rwanda PLC to launch micro lending product. In 2017, NCBA
Bank Rwanda PLC in partnership with Rwanda’s leading telecommunication provider,
MTN Rwanda through Mobile Money Services, both launched a product called
MoKash. The MoKash product has savings and loans product, to enable registered
MTN Mobile Money customers to save and earn interest and to take loans on a short
term basis using their phones. Depending on customer credit scores, MoKash allows
MTN Mobile Money customers to borrow between 1,000 Rwf and 300,000Rwf. The
customer is also allowed to save with 100 Rwf as minimum and earn interest up to 7%
per annum on savings account. Additionally, the customer can setup an auto-savings
arrangement to periodically make deposits to their MoKash. MoKash micro credit
provides 30-day term loans at 9% facilitation fees. The MoKash product is accessible
by MTN Mobile Money subscriber through USSD (IGIHE, 2021).

MoKash Savings and Loans solutions are especially critical to allow equal access to
finance for small investments for low income population. The purpose for savings and
lending solutions delivered digitally, it’s because they lower the access barriers for
households that are typically underserved by formal financial services providers such
as commercial banks. MoKash was launched in Rwanda as 4th product for NCBA
Group PLC after strategic partnership with other regional telecommunication
companies. MTN Rwanda Partnering with NCBA Rwanda PLC to bring this innovative
product to the forefront reiterates their commitment to contributing to the Rwanda
national economic strategy on enhancing cashless economy (NEWTIMES, 2021). The
main objective of the product is to enhance Rwanda’s financial inclusion agenda as it
makes it possible for people to easily use the service without having to be present
physically to any branch while opening an account, Some of the key features, no
minimum balance is required, and no transactional charges are incurred while moving
money between MoKash and MTN Mobile Money (CNBCAFRICA, 2021).

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4.5 M-Pawa
Inm 2014, Vodacom Tanzania and the Commercial Bank of Africa (CBA) currently
known as NCBA Tanzania Plc launched M-Pawa, a mobile savings and loan product
in Tanzania. Before the launch of this product, national level this service held great
promise to include 93% (as of FinScope Tanzania 2013) unbanked Tanzania’s rural
population. M-Pawa Product was launched in Tanzania on the basis of successful
similar product in Kenya called M-Shwari . M-Pawa has micro loan for one month with
9% facilitation fees/month. The credit scoring is done by NCBA Tanzania Plc upon
customer request, then instantly scores is sent back based on customer’s historical
mobile phone, data and money usage. The large number of M-Pawa users were
motivated by the loan feature even though there is saving capability in place (CGAP,
https://www.cgap.org/, 2021).

The Connected Farmers Alliance interviewed more than 400 rural Tanzanians. These
research findings provide us with a better understanding of M-Pawa’s impact on and
role in Tanzanian farmers’ lives. Based on the CGAP research, it was found that M-
Pawa is delivering an effective mobile banking product with following key responses:
Positive perceptions of M-Pawa, M-Pawa micro loans are mainly for business and
investment purposes, women feel empowered to make financial decisions, 90% of
respondents agreed that M-Pawa is safer and easy to use and 78% of M-Pawa users
reported recommending M-Pawa to at least one person(CGAP, https://www.cgap.org/,
2021).

4.6 MoKash (Uganda)

In 2016, Commercial Bank of Africa (CBA) Uganda currently known as NCBA Bank
Uganda PLC in partnership with MTN Uganda through their mobile money services
launched micro lending product called MoKash-Uganda. MoKash is a service that
provides customers both savings and micro loans using their phones. The more you
save increase your credit limit to borrow. Customers can save while earning an interest
or take out short term loans at a reasonable fee. MoKash customers can save a
minimum amount of UGX 50 up to any amount depending on KYC level, depending
the amount interval interest rate for savings varies between 2%-5% per annum.
Additionally, the customer can setup an auto-savings arrangement to periodically
make deposits to their MoKash. You can borrow between UGX 3,000 to UGX

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1,000,000 depending on your loan limit at a facilitation fee of 9% (MTNUGANDA,
2021).

4.7 Performance Analysis

This section is very important to assess the effectiveness of credit management
system on micro credit performance in East Africa’s Commercial Banks and Mobile
Network Operators. The data collected from respective products will be used to
assess how credit management principles are effectively used in micro credit to
improve loans performance.

4.7.1 Credit Pricing

In the previous credit management sections, we discussed key areas to consider, in
order to have better credit management platform. The credit policy is guiding
document stating terms, limits, pricing etc…. The below Table 2 and Figure 1 provide
us with comparison pricing for six products above in question:

% Savings % Savings % Late

% Loan On
Interest Interest Payment
Product time
Min/Year Max/Year Penalty
Facilitation
/Month
M-Shwari 7.50 3.00 6.00 7.50
KCB – MPESA 7.35 6.30 6.30 7.50
M-KESHO 0.50 3.00 3.00
MoKash (Rwanda) 9.00 7.00 7.00 9.00
M-Pawa 9.00 5.00 5.00
MoKash (Uganda) 9.00 2.00 5.00 10.00

Table 2: Products pricing comparison (Interests, Penalties)

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 Product Pricing Comparaison
12.00

10.00

8.00

6.00

4.00

2.00

0.00
M-Shwari KCB – MPESA M-KESHO MoKash (Rwanda) M-Pawa MoKash (Uganda)

% Loan On time Facilitation % Savings Interest Min/Year

% Savings Interest Max/Year % Late Payment Penalty /Month

Figure 1: Products pricing comparison (Interests, Penalties)

Please note that for M-KESHO product on time facilitation fees for micro credit is not
in percentage, instead their pricing is based on interval fees (20-500 KES). The other
remaining products all of them use percentage based for savings interests, facilitation
fees and late payment fees. M-PAWA product is not clear on late payment penalty
fees that why it was left out.

4.7.2 Credit Terms and Conditions

Traditionally, credit terms and conditions are kept by the financial institutions lending
to different borrowers. Contrary to the most micro credit products which are fully online
based automatic using digital channels being USSD, mobile Application, etc…
Exception goes only to M-Kesho which is type of hybrid product with a bit of manual
process using Mpesa outlet. The below links for fully digital micro savings and lending.

Product Terms and Conditions

https://www.safaricom.co.ke/images/Downloads/Terms_and_Conditio
M-Shwari ns/M-SHWARI_TERMS_AND_CONDITIONS.pdf
KCB – https://www.safaricom.co.ke/about/media-center/publications/terms-
MPESA and-conditions/kcb-m-pesa-account-terms-conditions
M-KESHO Not available online
MoKash https://www.mtn.co.rw/wp-content/uploads/2020/08/TCs-for-use-of-
(Rwanda) MTN-RWANDACELL-LIMITED-mobile-money-services..pdf

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 https://www.vodacom.co.tz/public/assets/files/TC%20For%20The%2
0Opening%20And%20Use%20Of%20The%20M-Pawa%20Account-
M-Pawa English%20Review%20September2020.pdf
MoKash
(Uganda) https://www.mtn.co.ug/terms-and-conditions/

Table 3: Locator of products terms and conditions

4.7.3 Credit Scoring and Risk

Scoring is a way of quickly evaluating a potential customer of a bank
or microfinance organization. The assessment is performed by analysing the
borrower's questionnaire and calculating each customer's score according to the rules
set out in the specific financial structure. The scoring model for our sample products
is based on save then borrow after. All these products have robust scoring engine
using different data source being mobile operators, commercial banks, credit bureau,
etc … The data set comprise, mobile operator expenses, airtime, mobile money
transfers, savings, purchases, etc… The risk of credit is defined by the pre-defined
score card with parameters and respective values as determining factors of exposure
and probability of repayment failure. The loan classification follows commercial banks
requirements as per countries’ regulators.

4.7.4 Credit Monitoring

All of these products have shown exponentially growth year on year. In relation to
growth these micro credit products in East Africa Community’s countries have shown
non-performing loans. Due to partnership these are bank account issued by
commercial banks and subject to all the regulatory requirements of a bank account in
their respective countries. Commercial Banks are responsible for maintaining a
dedicated management information system, regulatory compliance, reporting to the
credit bureau and providing capital to fund the loan portfolio. Critically, it is commercial
banks that carry the risk and absorbs losses from non-performing loans.

4.7.5 Payment Collection

The above analysed products most of them provide one-month repayment loan. The
repayment frequency varies per product where there are weekly repayment and

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monthly repayment possibility. In addition, we have also a possibility of early
repayment as long as facilitation fees are already collected. The funding account in
most case is mobile money wallet; few cases it allows payment collection from
commercial bank accounts. The most important process is the automation of payment
collection.

5 CONCLUSION
The main objective of this essay was to assess what is the effectiveness of use of
credit management principles in micro credit; and how can micro credit performance
in East Africa Commercial Banks and Mobile Operators be improved by leveraging
credit management system. This document has linked the credit management and
micro credit theory and practical situation for our products sampling: M-shwali, KCB-
MPESA, Mo-Kesho, MoKash (Rwanda),MoKash(Uganda) and M-Pawa. The following
are delivered from our analysis:

- Credit management principles are most likely to be compromised for micro

credits.
- Micro credit will have high non-performing loans compare to other normal loans
strictly following all credit management principles.
- The product to completely fail is low considering that their more mass targeted
products you can gain for performing contracts.
- The better suitable for technology based credit to avoid making human
resources expensive.
- The cost of credit is high by interest rate compare to normal loans to reduce
product exposure and set for failure.
- Credit scoring needs different data source in order to catch applicants behaviour
and probability to fail honour the contract.
- The lender needs to have different means of collecting payment to ensure no
failure on repayment collection.

The topic has more future research areas to explore more and ensure micro credit are
successful in EAC and globally.

6 REFERENCES
1. Credit Management, Sixth Edition, Glen Bullivant in 2016.

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2. Credit Risk Management in Finance. A Review of Various Approaches,
Aleksandra, 2018.
3. https://www.businessdailyafrica.com/bd/corporate/companies/mobile-based-
m-shwari-lends-sh430-billion-in-seven-years-2273430
4. https://www.bankpedia.org/index_voce.php?lingua=en&i_id=114&i_alias=m&c
_id=23985-
microcredit#:~:text=Microcredit%20(Mc)%20includes%20a%20large,collateral
%20guarantees%20produced%20by%20beneficiaries.
5. https://www.fsdkenya.org/blog/m-shwari-vs-kcb-m-pesa-convergence-or-
divergence/
6. https://www.cgap.org/research/publication/how-m-shwari-works-story-so-far
7. https://en.igihe.com/news/mtn-cba-bank-launch-mokash-a-mobile-loans-
savings.html
8. https://www.cnbcafrica.com/media/5325128937001/cba-bank-mtn-launch-
mokash-a-savings-and-loan/
9. http://www.hope-
mag.com/index.php?com=news&option=read&ca=1&a=2863&fbclid=IwAR1Iv
KxfWwLxj3ZznkGxEBBlRv637seS8n42Itdisi0vnM_PyMYieLKPxIg
10. https://www.cgap.org/blog/m-pawa-1-year-mobile-banking-perceptions-use-
tanzania
11. https://www.mtn.co.rw/ncba-and-mtn-rwanda-offer-reprieve-to-mokash-
customers-as-the-impact-of-covid-19-takes-
effect/#:~:text=MoKash%20provides%2030%2Dday%20term,up%20to%207%
25%20per%20annum
12. https://www.newtimes.co.rw/section/read/208052

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Electronic copy available at: https://ssrn.com/abstract=3855367