Branch bought a microfinance bank in Kenya in 2023 after it secured a licence to operate a bank from the central bank of Kenya. Now, Branch operates as a neobank with additional products and services. In the future, its customers may be able to access business loans.

Loan apps have been having a tough time in markets such as Kenya, and regulators have since instituted laws against personal data abuse, among other measures. These measures include policing cases of harassment for customers who cannot repay their loans and mandating that loan companies must have physical offices.

The laws also require that digital credit companies obtain a licence from regulators. To this end, licensed digital apps have dropped from over 200 to just under 40. Other players, such as Branch, have since pivoted beyond loan services to further appeal to customers.

Launched in 2016, digital lender Branch says it is now a neobank. This is coming on the heels of a revamp of its product portfolio aided by the acquisition of Century Mfb, a microfinance bank in Kenya. Branch, which operates in Kenya, Tanzania, Nigeria, and India, revealed that it has since spread its wings and looks forward to participating in the digital banking sector that has since been home to other neobanks like Fingo and NCBA Loop, a neobank offshoot by NCBA Bank.

According to Branch founder and CEO Matt Flannery and the company’s managing director for East Africa Rose Muturi, the platform has been eyeing a bigger market beyond its basic online loans.

For this reason, it acquired a microfinance licence from the Central Bank of Kenya (CBK), which allowed it to purchase Century Microfinance. Afterwards, Branch embarked on a journey to make its products and services fully neobank-based by closing most of Century’s physical branches across Kenya. At the moment, only one banking hall exists, which serves some enterprise customers it inherited from Century.

According to MD Rose Muturi, while Branch acquired a banking license from the CBK, the regulator is yet to develop a regulatory framework for neobanks. For the moment, neobanks are mostly under ordinary banking laws, but Muturi hopes the CBK will formulate different regulations for neobanks.

Branch offers three primary products: loans, savings, and payments to Branch-specific tills. Branch also allows customers to send funds to each other for free, saving them additional costs that arise from transferring funds to another mobile money wallet such as M-PESA.

Using AI to manage borrowing risk

Similar to other loan apps such as Tala, Branch, which has a customer base of 4.5 million customers, leverages AI tools, machine learning and algorithms to determine credit scores. These technologies are, however, not new. Still, AI has been gaining momentum over the last couple of months, thanks to its powerful feature sets and availability to millions worldwide.

In this case, Branch leverages AI algorithms to evaluate the creditworthiness of borrowers. According to Branch CTO Anshul Agrawal, the tools analyse various data points, such as credit history, to assess the likelihood of loan repayment. Also, AI algorithms can analyse borrower profiles, financial data, and preferences to provide personalised loan recommendations. This is the reason different applicants have different recommendations; while those with poor scores are rejected, they can improve their repayment profiles for future credit.

Branch Pro

Following its transition into a neobank, Branch now has enterprise customers, such as businesses that may want facilities such as loans. For this reason, the lender has Branch Pro, which is available only in India, for now.

Branch Pro offers loans to businesses. It uses different data sources and models to determine if a business qualifies for credit, such as bank statements. Although Branch reps cannot say exactly when the product will launch in other markets, there is likely a plan to expand it beyond India. Branch now owns an online bank in Kenya, with millions of customers who may want additional services such as business loans.

The lender has since disbursed 16.4 million loans to 3.1 million customers in Kenya, with a cumulative value of KES 5.2 billion ($37.5 million).

“As the first neobank in Kenya, Branch International continues to transform the banking landscape through its innovative use of AI technology to implement a risk-based lending model that allows it to effectively meet the credit needs of all its customers, meeting customers’ diverse financial needs. By reducing credit risk with AI algorithms, Branch International ensures responsible lending practices that benefit both individuals and the broader economy,” said Muturi.