Banks cut mobile phone loans over CRB listing freeze



Banks cut digital lending to customers in the wake of a rise in non-payment following the six-month freeze on listing defaulters with credit reference bureaus (CRBs).

KCB Group #ticker:KCB, Equity #ticker:EQTY, and NCBA #ticker:NCBA all reported that they had slowed down digital loans to avoid higher defaults in the wake of listing freeze that lasted between April 1 and end of September.

The lenders say listing relief that was offered by Central Bank of Kenya (CBK) reduced the motivation of customers to repay the loans, which are mostly taken for consumption.

KCB chief executive Joshua Oigara says the lender was initially disbursing about Sh10 billion per month, but the listing freeze saw it cut the lending to below Sh5 billion.

“Without the ability to list anybody on the CRB, then there was no motivation for the customers to pay. This was a very difficult measure and it contributed to us reducing the lending,” says Mr Oigara.

“Our levels of non-performing loans for this product increased from two per cent to 15 per cent in the second and third quarter of the year.”

Unlike conventional lending where customers mostly meet credit managers for approval, the appraisal and disbursement of digital loans are done via e-platforms.

Equity CEO James Mwangi told the Business Daily that the lender took a cautious approach by cutting digital loans to borrowers who have no account at the bank.

“We had to be very careful. We tightened the rules because fintechs were denied access to CRBs and we couldn’t tell much about the credit profile of non-bank customers,” he said.

The listing freeze was part of a stimulus package announced on March 25 to cushion distressed businesses and individuals from the effects of Covid-19.

The move sought to spare customers from listing in an environment of reduced consumer demand that forced businesses to shed jobs and cut back on their operations.

The value of loans disbursed via M-Shwari dropped by 14.3 per cent to Sh47.5 billion while that of KCB-M-Pesa declined by 60.1 per cent to Sh27.3 billion.

The tightened digital lending by banks saw borrowings via Safaricom overdraft service Fuliza surge 33.1 per cent to Sh149.4 billion in the review period due to its relaxed approval process.

Fuliza is underwritten by KCB Group and NCBA Group and charges customers a one-off 1.083 per cent interest and a daily administrative fee based on the outstanding balance.

Safaricom chief financial services officer Sitoyo Lopokoiyit said more customers turned to Fuliza during the review period.

“CBK stopped listing of non-performing loans for both digital and banking products and that meant KCB and NCBA had to be more prudent,” he said.