Economy

CRB queries double driven by mobile phone lenders

loan

Inquiries for borrowers’ profiles from credit reference bureaus (CRB) more than doubled last year as lenders extending loans through mobile phone sought to make quick decisions on ability to pay.

Central Bank of Kenya annual report data shows that credit reports requested by commercial banks and microfinance banks increased significantly by 116 percent from 12.4 million reports in 2018 to 26.8 million reports in 2019.

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.

This has seen an increase in negative listings of 3.2 million Kenyans with a big chunk of them having borrowed on average Sh2500 or less from digital lenders.

“Credit reports requested by commercial banks and microfinance banks increased significantly by 116 percent from 12.4 million reports in 2018 to 26.8 million reports in 2019. The increase is attributable to growth in mobile lending which is supported by customer credit reports accessed from bureaus,” CBK said.

CBK data also showed that borrowers were increasingly making request for their own credit scores, taking advantage of entitlement to one free credit report a year.

“Similarly, the requests for credit reports by individual customers increased exponentially by 343 percent from 149,558 reports in 2018 to 661,891 reports in 2019. The increase is attributable to increasing customer awareness on their right to a free credit report every year and improvement in credit reports access channels provided by the bureaus using short message services, apps and emails,” CBK said.

Increased use of CRBs by digital lenders to threaten borrowers to pay led to a jump in the number of defaulters reported to one of Kenya’s three CRBs— Metropol, TransUnion and Creditinfo International.

Some of the loans are short term and charge very high interest rates including market leader M-Shwari, Kenya’s first savings and loans product introduced by Safaricom and Commercial Bank of Africa in 2012, which charges a “facilitation fee” of 7.5 percent on credit regardless of its duration.

On a loan with a month’s term, this equates to an annualised interest rate of 91 percent.

Tala and Branch, other top players in the mobile digital lending market, offer interest rates of 19 percent and 29 percent respectively for loan borrowed over one month.