More than 140,000 users of the mobile phone based bank account M-Shwari have been blacklisted for defaulting on loans.
Commercial Bank of Africa (CBA) forwarded names of the defaulters to credit reference bureaus, potentially locking them out from accessing the loans market for at least five years or consigning them to high borrowing charges.
CBA, which jointly developed the mobile phone bank account service with Safaricom, has been forwarding the names of those who fail to repay their debt for more than three months.
“CBA confirmed (it) intends to report the M-Shwari portfolio to the credit reference bureaus,” read a report authored by a consultant from Oxford University on behalf of Financial Sector Deepening (FSD) Kenya, an organisation involved in expanding access to financial services.
An M-Swari loan is payable within 30 days at an interest rate of 7.5 per cent. CBA is estimated to disburse 24,000 M-Shwari loans everyday valued at about Sh7.3 million.
The bank did not respond to our queries on the value of loan defaults or total number of active M-Shwari accounts by the time of going to press.
Increased uptake of the mobile phone product has seen CBA rise to be the second largest retail bank on the basis of deposit accounts. In October, the bank reported of having crossed the five million accounts mark.
Though it is mainly associated with small loans, good borrowers with the bank are able to graduate and access larger loan facilities. The CEO had told the Business Daily in a previous interview that some were now borrowing up to Sh8,000 backed by their credit history.
CBA bears the credit risk associated with M-Shwari which was launched 14 months ago as the loans are carried in its books.
Twenty five thousand of those blacklisted have cleared their outstanding amounts, but the blemish will remain with them for the next five years as per the credit reference guidelines.
All banks have incorporated checks with the bureaus as part of appraising a customer before giving them a loan. Any listed customer is required to first clear the outstanding amount before being considered for a loan, of which most are denied.
Many may have thought they could dodge the M-Shwari system given its ease of application. The customers need not have a prior interaction with CBA as their qualification is pegged on the usage of their Safaricom’s M-Pesa account.
CBA has in the past defended the pricing of the loan at a flat 7.5 per cent on the basis that there was no comparative product in the market and they did not know the credit risk to peg on the customers.
Blacklisting of defaulters is therefore expected to lead to reduction of pricing as the credit risk is lowered. FSD, however, cautions that the voluminous listing expected to follow the growth of M-Shwari could burden the bank and the credit bureaus.
“The credit information sharing system will have to be very efficiently run to be cost-effective for this mass market of very small loans that average around Sh1,000 per customer,” read the report.
The success of M-Shwari has seen other lenders also launch mobile money products that allow access to credit without visitation to the bank.
KCB hopes to record a similar success with its recently launched M-benki services, in which it has collaborated with Safaricom to see the mobile firm’s subscribers open bank accounts with it from their handsets. KCB aims to open three million accounts in the next 12 months using the service.
Family Bank hopes to have five million accounts on its mobile product launched in December by end of August.
The lenders are hoping to increase their transaction income from the high number of clients to help them ease their reliance on interest income.