Economy

CRB freeze halves digital lenders Sh2bn montly loans

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The Central Bank of Kenya head office. FILE PHOTO | NMG

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Summary

  • Top digital lenders cut lending to Sh2 billion a month after the Central Bank of Kenya kicked them out of credit reference bureaus last year.
  • Digital Lender Association of Kenya (DLAK) chairman Kevin Mutiso said member firms were lending Sh4 billion monthly before the coronavirus pandemic hit.
  • Their CRB move, he said, had denied members borrower profiles to make quick lending decisions and left them without recourse on defaulters forcing them to cut loans by half.

Top digital lenders cut lending to Sh2 billion a month after the Central Bank of Kenya kicked them out of credit reference bureaus last year.

Digital Lender Association of Kenya (DLAK) chairman Kevin Mutiso said member firms were lending Sh4 billion monthly before the coronavirus pandemic hit.

Their CRB move, he said, had denied members borrower profiles to make quick lending decisions and left them without recourse on defaulters forcing them to cut loans by half.

“We were extending credit averaging Sh4 billion pre-Covid but our loans went down by more than 50 per cent in 2020 due to the new government regulations put in place to regulate digital money lending after Covid-19 cases were detected in the country," Mr Mutiso said.

DLAK is an association of 11 digital lenders including Tala, Alternative Circle, Stawika Capital, Zenka Finance, MyCredit, Okolea, Lpesa, Four Kings Investment, Kuwazo Capital and Finance Plan.

The association said an estimated six million customers borrow an average of Sh4,000 for a period of 30 days.

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

The low value loans and short repayment period have resulted in high rates of default and negative listing and digital borrowers made up 90 per cent of the black listed Kenyans before the regulator intervened.

CBK revoked the approval of digital lenders to share data on CRBs’ that barred 337 unregulated digital mobile lenders from forwarding the names of loan defaulters to the bureaus.

Mr Mutiso said the digital lenders initially stopped offering any loans in March and April but resumed later targeting only the borrowers who had a good repayment history.

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


Mr Mutiso said that once regulations to police the sector are passed in parliament, allowing their return to the credit information sharing platform they will resume full lending.

Mr Eric Oluoch Chief Executive Officer Quest Holdings a debt recovery company said the move has shifted digital loans towards banks which continue to enjoy access the mechanism.

“We are seeing the market shifting to the banks which can still use the mechanism and are now the primary lenders in this market. Most of the digital fintechs just stopped lending and tried to recover their capital,” Mr Oluoch said.

Kenya has witnessed a proliferation of digital lenders targeting the banked and unbanked 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 very 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.

CBK kicked them out of the CRB mechanism leaving only 39 banks, 14 microfinance banks, 1,353 unregulated saccos, 164 regulated saccos were allowed to continue using the mechanism from the end of August.

Metropol one of the three licensed CRBs says 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 9 million to 14 million between August and January even without the digital loans.