Rotich asks lenders to cut rates for good mobile loan clients

The Treasury has asked commercial banks to cut interest rates charged on mobile loans where repayment history has been good.

Cabinet secretary Henry Rotich last week urged banks and mobile network companies to reward repeat borrowers who have built a good credit history.

Mobile based loans attract a flat interest rate of between six per cent and 7.5 per cent for loans repayable within 30 days.

“This transformation in pricing must begin with granting preferential rates to the consumers of small amounts of credit granted through the mobile phone, who have shown a consistent history of prompt repayment,” said Mr Rotich during the third regional conference on credit information sharing.

Uptake of mobile money loans has been high since introduction two years ago due to ease of access and fast disbursement.

KCB said it had issued five million loans since it launched a partnership with M-Pesa 10 months ago. The loans are valued at Sh7 billion with each account averaging Sh3,000.

“We have a 98 per cent repayment record with most people borrowing in the morning and repaying in the evening,” said KCB Group chief executive Joshua Oigara.

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KCB charges a one-off facilitation fee of six per cent for loans repayable within a month and four per cent for a three-month debt. The interest is retained by the bank during disbursement.

Equity Bank has said it processed 74 per cent of the loans disbursed in the first 10 months of last year through its mobile phone platform Equitel.

The bank had 1.2 million loans worth Sh5.4 billion processed through Equitel in the 10 months to October compared to 438,000 loans — of higher individual values though — issued through credit officers in branches.

“The cost reduction of doing 75 per cent of all our loans without staff involvement is huge. We are happy that eventually we have an auto channel for the asset side (lending business) of the bank, which means people can borrow 24/7,” the bank’s chief executive James Mwangi had told investors during a briefing at the end of last year.

The bank charges a fee of six per cent for 30-day loan.

Commercial Bank of Africa has partnered with M-Pesa for M-Shwari which charges 7.5 per cent flat fee the short-term debt.

The lender, which was the first to issue the mobile money loans, had indicated it would review the pricing after it had evaluated performance of the loans in terms of default.