A user browses through the menu of a smartphone. FILE PHOTO Buying electricity on credit through a Safaricom associate is the most expensive digital mobile lending in ranking by the bankers lobby group, which also that reveals the exorbitant monthly interest charged on other “soft” loans given through mobile phones.
The Kenya Bankers Association (KBA) study shows that the mobile-based electricity loan, known as Okoa Stima, attracts a monthly interest of 43.4 per cent, making it the most expensive, while Equity Bank’s Equitel was ranked the least costly at 2.1 per cent per month.
Other costly digital lenders are Pesa na Pesa, which charges interest similar to Okoa Stima, Kopa Chapa (38.8 per cent), Pesa Pata (30.4 per cent) and Kopa Cash (15.3 percent). These monthly interest rates are way above the average cost of regulated banking credit that KBA puts at 1.1 per cent.
The appetite for digital loans has led tens of unregulated microlenders to invade Kenya’s credit market in response to a rise in demand for quick loans and the freeze in commercial bank lending to individuals and small business that followed the 2016 capping of interest rates.
From having had little or no access to credit, many Kenyans now find they can get loans in minutes through their cell phones.
However, it is emerging that the proliferation of the digital lenders extending credit to the banked and unbanked alike has saddling borrowers with high interest rates as the banking regulator races to keep up.
“The risks associated with unsecured digital lending necessitate lenders to reduce their risk exposure by charging fees and interest rates that are relatively high as compared to conventional loan products,” KBA says in the study.
The current legal regime of the digital lenders, which is outside the direct remit of the central bank, allows providers, both banks and others, to escape the government cap on interest of four points above the state benchmark interest rate, which now stands at 9 percent and caps credit cost at 13 per cent.
Market leader M-Shwari, Kenya’s first savings and loans product introduced by Safaricom and Commercial Bank of Africa in 2012, charges a “facilitation fee” of 7.5 per cent on credit regardless of its duration.
On a loan with a month’s term, this equates to an annualised interest rate of 91 per cent. But the Okoa Stima product when annualised pushes the cost of the electricity loan to […]