Kenyan digital lenders feel the heat of virus

A man makes a phone call next to an M-Shwari branded bus stand in Nairobi. Kenya has built a reputation as a pioneer of financial inclusion through its early adoption of mobile money system. PHOTO | NMG Kenyan lenders have agreed on a set of measures to cushion borrowers against the economic hardships with relief based on one’s circumstances.

Default rates expected to jump in the wake of the outbreak that has hit consumer demand and forced businesses to shed jobs and cut back their operations.

President Uhuru Kenyatta on March 25 proposed temporary suspension of the law requiring loan defaulters to be listed with the CRBs as part of measures to cushion workers and businesses from effects of the virus.

Kenyan digital lenders have agreed to waive the late repayment fees for borrowers to cushion them from the economic effects of the Covid-19 pandemic even as it emerged that the inflated charges levied by digital credit apps are pushing many borrowers into a debt trap.

A recent market survey by analysts at the Kenyan-based investment bank EFG Hermes shows that the bulk of the borrowings from digital platforms are below $50, with many as low as $1.50 while the lowest total cost of credit for a digital loan from an app is 352 per cent (on an annual basis).

“The total cost of credit (TCC) for digital loans is very high, especially when you annualise the daily, weekly, Bi-Weekly and monthly rates that these providers quote to their prospective borrowers,” according to the analyst through their survey report dubbed Kenya by Numbers dated February 19.

Although the upsurge of mobile bank and digital apps have become an important part of the credit system in Kenya households and owners of small-and medium-sized businesses (SMEs) have taken advantage of their mobile phones to access quick loans, mostly without adequate information on the cost of the facilities.

Late repayment
“In addition to the interest costs being disproportionally high for low-income earners to access credit, we believe that digital lenders have not done enough to educate their customers on these new products,” according to Hermes.

Available data shows that more than 3.2 million Kenyans have been blacklisted by the country’s credit reference bureaus (CRBs) compared with 2.7 million last year with the bulk of them being linked to consumers of digital loans.

Last week the Digital lenders Association of Kenya (DLAK) which represents 17 major digital […]

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