Mobile loan borrowers shrug off 20pc tax rise


Borrowers of digital loans remain unfazed by tax measures that have increased credit costs over the last two years. FILE PHOTO | NMG

Borrowers of digital loans remain unfazed by tax measures that have increased credit costs over the last two years.

Leading Fintech Tala says borrowers are still flocking the mobile-based application for short-term loans despite the new 20 percent excise tax on fees.

“You know, the numbers have not changed so much we’ve been doing originations of about $1.5 billion in the market since we launched. And we haven’t seen our multi-month numbers change,” said Mumbi Annstella - senior country growth manager – Tala.

“And that is similar to what we call our repeat rate, how many people are actually coming back to borrow, and that still remains to be at 90 to 95 percent over the years.”

Last-minute changes proposed to the Finance Bill led MPs to impose excise duty on fees charged by fintech digital lenders following a similar charge on mobile phones operated by banks and telcos last year.

Last year’s tax did not deter lending via platforms such as Fuliza, which disbursed Sh502.6 billion in the year to March 2022, translating into a 43.1 percent rise from the Sh351.2 billion lent over a similar period the previous year.

“I’d say as of now, the tax has not yet affected the number of people borrowing on our platforms. But given that, we’ve just applied it this month, we are still waiting to see how the stats, whether it will impact our business in any way,” said Ms Mumbi.

“The 20 percent exercise tax applied on their interest rates for their loans is very similar to the experience we’ve seen with formal lenders such as KCB who were subjected to the exercise duty, as of last year.”

Digital lenders have now joined the traditional credit providers such as banks and micro-financiers in paying the excise tax that is set to raise billions of shillings to the Kenya Revenue Authority.

Parliament approved changes to the law that imposed a 20 percent tax on fees and commissions earned on bank credit, triggering an increase in the cost of mobile loans effective July 1 last year.

The imposition of tax produced an increase in the cost of mobile loans such as KCB M-Pesa and M-Shwari and the overdrafts feature Fuliza—jointly owned by Safaricom and NCBA Group.

New taxes have not slowed down mobile borrowing which exploded as tens of unregulated microlenders have invested in Kenya’s credit market in response to the growth in demand for quick loans.

From having little or no access to credit, many Kenyans now find they can get loans in minutes via their mobile phones.

Central Bank of Kenya says borrowers tapping digital loans from unregulated lenders grew from 200,000 in 2016 to more than two million in 2019.

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

The surge in mobile phone borrowing spiked defaults prompting regulators to try and clamp on the sector including ejecting digital lenders from the Credit Reference Bureau mechanism and regulating the sector through the Central bank of Kenya.

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