Digital mobile lenders lock defaulters out of platforms

Unregulated digital mobile lenders have limited lending to a select customer to curb loses after the Central Bank of Kenya banned them from forwarding the names of loan defaulters to credit reference bureaus (CRBs).

Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso said the lenders initially stopped offering any loans in March and April but later resumed, targeting only the borrowers who had a good repayment history.

“We stopped lending in March through April and May but we had to make decisions so we wrote off all bad loans. We are currently only lending to the best customers, those who understand that they have to pay,” he said.

“Most borrowers initially were borrowing with no intention to pay back.”

Mr Mutiso added that once regulations to police the sector are passed in Parliament, allowing their return to the credit information sharing platform they will resume lending to all borrowers.

Digital borrowers are twice as likely to default as those who take conventional loans as a result of multiple borrowing and use of the funds for consumption, according to research by Digital Credit, Financial Literacy and Household Indebtedness.

A majority of loans defaulted by Kenyans are taken from mobile lenders with digital lenders making up 90 per cent of the negatively listed Kenyans.

Kenya has witnessed a proliferation of digital lenders targeting the banked and un-banked alike, saddling borrowers with high interest rates and leaving regulators scrambling to keep up.

Low income household have been lured into the easily accessible mobile loans which have aggressive recovery methods including being too quick to list borrowers for small defaults.

Most of the mobile loan takers are oblivious to the conditions that include lifetime of SMS notifications, full surrenders of their personal data to third parties and waiver of their right to dignity.

Central Bank kicked them out of the CRB mechanism leaving only 39 banks, 14 microfinance banks, 1,353 unregulated saccos, 164 regulated saccos at the end of August.

Metropol, one of the three licensed CRBs, said the count of loans with days in arrears greater than 90 days stands at 14 million out of 110 million loan accounts.

The number of blacklisted loan accounts doubled from nine million to 14 million between August and January even without the digital loans.

Eric Oluoch, CEO of Quest Holdings, a debt recovery firm said the move has shifted digital loans towards banks, which continue to enjoy access to the CRB mechanism.