M-Shwari’s customer savings have hit over Sh24 billion in just over one year since the launch of the mobile phone based bank account, making it theoretically Kenya’s 18th biggest bank based on client deposits.
Commercial Bank of Africa (CBA) said Thursday that it receives Sh200 million in deposits daily from over six million users of M-Shwari, launched jointly with telecommunications company Safaricom in November 2012.
The bank has loaned out Sh7.8 billion to M-Shwari users, disbursing over 30,000 loans each day.
The savings-and-loans account has however also recorded defaults of about Sh241 million, equivalent to 3.1 per cent of total credit to borrowers.
“It is not a surprise because when we started we knew some people would think they could steal from us. Now we have them marked,” said Safaricom CEO Bob Collymore at a press briefing Thursday.
CBA has submitted names of over 140,000 borrowers for blacklisting by the credit reference bureaus for failing to repay their debts within three months.
The loans issued through mobile phones number over 1.5 million, equivalent to total loans disbursed by Kenya’s six largest banks. The customer deposit base is equivalent to that of most medium sized banks.
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 M-Pesa accounts and savings.
Safaricom said the M-Pesa balances of an M-Shwari defaulter cannot be used to settle their outstanding loans as one is a bank product while the other is a telco service.
This leaves CBA with little room for recourse apart from blacklisting the defaulters.
“Listing with the CRB is the last resort, we usually have to go through other channels such as reminders and moral persuasion,” said CBA’s chief executive Jeremy Ngunze.
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.
Research firm Financial Sector Deepening Kenya (FSD) has, however, questioned whether blacklisting of M-Shwari defaulters with the reference bureau will be cost effective, given the relatively small figures involved.
An M-Shwari loan is re-payable within 30 days at an interest rate of 7.5 per cent. The bank said interest charged is a one-off settlement meaning that the defaulted amount does not continue to accrue interest.
CBA has in the past defended the pricing of the loan at a flat rate of 7.5 per cent, arguing that there was no comparative product in the market and they did not know the credit risk to peg on customers.
Blacklisting of defaulters is expected to lead to reduction of pricing as the credit risk is lowered. Borrowers of M-Shwari are put on a graduating scale following their loan repayment, allowing them to access higher amounts.
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.
CBA’s deposits in the one year to September grew by 26.2 per cent to Sh86.8 billion, compared to the industry growth of 11 per cent over the same period.
The success of M-Shwari has seen other lenders also launch mobile money products that allow access to credit without visiting the bank.
KCB hopes to record a similar success with its recently launched M-Benki service, 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 also targets to open five million mobile phone accounts by August, having launched in December.
The lenders hope to increase their transaction income from the high number of clients to help them ease their reliance on interest income.