Safaricom, NCBA split on cutting M-Shwari charges


NCBA branch in Nairobi. FILE PHOTO | NMG

NCBA Group #ticker:NCBA has differed with its partner Safaricom #ticker:SCOM over the push to lower the customer charges on M-Shwari loans amid pressure for the State to curb unregulated digital mobile lenders who charge exorbitant monthly interest rates.

The bank said there were no immediate plans to cut the fees linked to M-Shwari, adding that it’s focused on making the digital loan competitive relative to similar products in the market place.

This contradicts an earlier statement made by Safaricom that it was keen to the cost of M-Shwari cut as part of a larger plan that will see more features added on the M-Pesa platform, including insurance and wealth management.

NCBA runs the M-Shwari app in partnership with M-Pesa and offers a maximum of Sh50,000 loan for up to 30 days with a "facilitation fee" of 7.5 percent on credit regardless of its duration.

"We have never said that we are reducing the rate of M-Shwari," NCBA group managing director John Gachora told the Business Daily in an interview.

"I think there have been comments about the rate that were made by our partner (Safaricom), not by NCBA. I do not think there have been any such plans."

Safaricom’s push for lower M-Shwari and M-Pesa overdraft facility, Fuliza, charges coincided with the proliferation of unregulated micro lenders in response to the growth in demand for quick loans, which have left borrowers with high interest rates.

"We would like the cost of this lending to come down and Safaricom is working to that end. It’s a regulated activity, certainly we will push to find ways to make it cheaper," Safaricom said earlier.

The Fuliza overdraft facility, which was launched in January last year, provides M-Pesa users with top-up loans whenever they need to make a transaction but find they lack enough money in their mobile cash wallets.

For instance, those borrowing Sh1,000 on Fuliza pay a one-off of one percent or Sh10 and a daily charge of Sh10.

This translates to a monthly charge of 31 percent or an annualised fee of 372 percent — way above the maximum regulated annual bank interest of 13 percent.

Market leader M-Shwari, Kenya’s first savings and loans product introduced in 2012 by Safaricom and Commercial Bank of Africa, which is now NCBA Bank after merging with NIC, charges a "facilitation fee" of 7.5 percent on credit regardless of its duration.

This pushes its annualised loan rate to 395 percent.

Scores of unregulated microlenders have invested in Kenya’s credit market in response to the growth in demand for quick loans.

Their proliferation has saddled borrowers with high interest rates, which rise up to 520 percent when annualised, leading to mounting defaults and an ever ballooning number of defaulters who have been adversely listed with credit reference bureaus (CRBs).

"Obviously there is continuous discussions to ensure that M-Shwari meet the needs of our customers without being punitive or predatory," Mr Gachora said.

Pressure on banks to use mobile channels to cut costs increased when the government capped lending rates in September 2016, crimping profit margins.

The legal cap was removed in November last year.

The cap reduced private sector credit growth as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed as too risky to lend to.

In turn, the credit crunch triggered an appetite for digital loans, paving the way for digital lenders to invade Kenya’s credit market.

The CBK, however, will regulate monthly interest rates charged by the digital mobile lenders and borrowers’ non-performing loans if a proposed law before Parliament is adopted.

The banking regulator will, among others, have to approve increases in digital lenders’ rates and other loan charges as well as put a ceiling on non-performing loans at not more than twice the defaulted credit.

A key aim of the Central Bank of Kenya (Amendment) Bill, 2020, which seeks to empower the banking regulator to supervise digital lenders for the first time, is to curb the steep digital lending rates that have driven many borrowers into a debt trap as well as predatory lending.

The digital lenders will play under the same rules as commercial banks, including having to seek the CBK’s nod for new products and pricings, if the Bill becomes law.