Capital Markets

Kenya credit access up six-fold on mobile lending


People outside an agency banking bureau. PHOTO | FILE | NMG

Mobile phone-based lending has helped grow access to credit for households in Kenya six folds in the last seven years, Standard Investment Bank (SIB) research shows.

The number of households or persons with loan accounts increased to 7.2 million between 2010 and 2016 as banks and telecom companies leveraged on wide mobile phone use to extend small loans.

“Mobile phone banking solutions have been able to capture households who were previously excluded from banking services due to lack of the more traditional banking credit history,” the SIB report said.

This allowed “banks to effectively compete with other non-bank credit providers whose main competitive advantage is quick loan processing,” the investment bank said.

Personal lending contributed very little to the rise in the unpaid loans – that have hit a 10-year high of 10.7 per cent of the banking sector total loan book by end of August, up from 9.3 per cent by the end of 2016.


Default in personal loan though jumped 42.4 per cent in 2016, compared to the previous year, as uptake of credit by individuals slowed – only growing 6.1 per cent – in the period.

This was attributed to the deteriorating ability by individual borrowers to service loans as household incomes dwindled in a squeezed labour market.

“We believe inability to service existing loans is mainly driven by softening formal job market and squeeze in discretionary income,” the SIB said.

The business sector contributed the most to the ballooning of the non-performing loans over the last four years, according to the SIB report.

Trade, real estate, manufacturing and construction were the main sectors that contributed to the increasing non-performing loan (NPL) levels.

The report indicated that the rate capping law introduced slightly over a year ago did not help in reducing the growth of non-performing loans.

In September 2016, Kenya fixed interest rates at four percentage points above the central bank rate and imposed a minimum deposit rate of 70 per cent of the benchmark rate.

“Contrary to common belief that low rates support NPL reduction, the correlation between lending rates and NPL ratio from FY03 – 2Q17, has been negative (-0.4),” the report said.