No clarity on mobile and small-loan rates in new lending caps

KCB Group chief executive Joshua Oigara. He said the recent law capping interest rates at 14.5  per cent is mute on its application on mobile banking loans. PHOTO | FILE
KCB Group chief executive Joshua Oigara. He said the recent law capping interest rates at 14.5 per cent is mute on its application on mobile banking loans. PHOTO | FILE 

The pricing of mobile phone and micro loans remains a grey regulatory area with some lenders insisting that both are not covered by the recent rate caps as others adopt a wait-and-see attitude.

Banks are looking at the fast-growing segment as a hedge against anticipated reduced revenues as rates shrink to 14.5 per cent while informal lenders hope to benefit from banks risk averseness for small borrowers.

“The law does not speak about microfinance institutions at the moment and our mobile lending is currently a micro-business product in the industry,” Kenya Commercial Bank (KCB) Group CEO Joshua Oigara said on Thursday.

He, however, said his bank will work closely with industry stakeholders to see how they structure mobile products, which are popular in the market.

Microlenders such as Tala, Branch, Saida and Mombo Mobile, which issue short-term loans via mobile money and mobile lending by banks—M-Shwari, M-Coop Cash, KCB-M-Pesa and Equitel—have been dispensing billions with annual rates of between 60 per cent to over 100 per cent.


“It is an issue that we are working on today, it is an area we have not been able to finalise on. We do believe that finally, it (Banking Amendment Bill) will affect some mobile loans as well, but that’s a journey we are starting today,” Mr Oigara said.

Cooperative Bank, which was the first lender to communicate a cut in lending prices, said it was still awaiting clarification from the regulator to make an announcement on mobile-based loans.

“We do not have a position yet and we are awaiting clarification. We do not want to jump the gun and have to change all over again when things are made clear. What we have done is reduce the basic vanilla loan but some other products will require unique modifications,” Co-operative Bank spokesman Francis Ngambi said.

Branch, which since commencing lending operations in April 2016 has disbursed and collected over Sh1 billion and has over 100,000 customers in Kenya, says the new law will not affect them though.

“As far as we understand it, the recent legislation is targeted at banks and other regulated financial institutions only and according to our legal advice, Branch, as a non-bank financial institution, is not impacted. It remains to be seen how other phone lending operations that are financed by banks, such as M-Shwari (Commercial Bank of Africa-CBA) and KCB M-Pesa, will be affected,” Branch managing director Sofia Zab said.

Finance Cabinet Secretary Henry Rotich has in the past said Treasury wants to come up with regulation for the technology-based business.

Kenya’s mobile-based micro lending is huge business with KCB M-Pesa having disbursed a total of Sh10.3 billion in loans to its customers since March last year, charging 30- day loans at six per cent a month (72 per cent annually).

The CBA product M-Shwari currently has 13 million customers and disburses loans for a period of 30 days (with a rollover option) for a one-off interest rate of 7.5 per cent.

Equity’s new mobile banking and communications platform Equitel issued loans worth Sh20.8 billion by end of June 2016. In 2015, M-Co-op Cash service had over 2.7 million registered users, 183,000 loans were disbursed.