CRB freeze halves digital monthly loan lenders Sh2bn


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Economy

CRB freeze halves digital monthly loan lenders Sh2bn


The headquarters of the Central Bank of Kenya. PHOTO FILE | NMG

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Summary

  • Major digital lenders reduced their loans to 2 billion shillings per month after the Central Bank of Kenya kicked them out of credit reference bureaus last year.
  • The President of the Digital Lender Association of Kenya (DLAK), Kevin Mutiso, said member companies were loaning 4 billion shillings per month before the coronavirus pandemic struck.
  • Their CRB decision, he said, had prevented members of the borrower profiles from making quick loan decisions and left them without recourse against defaulters, forcing them to cut loans in half.

Major digital lenders reduced their loans to 2 billion shillings per month after the Central Bank of Kenya kicked them out of credit reference bureaus last year.

The President of the Digital Lender Association of Kenya (DLAK), Kevin Mutiso, said member companies were loaning 4 billion shillings per month before the coronavirus pandemic struck.

Their CRB decision, he said, had prevented members of the borrower profiles from making quick loan decisions and left them without recourse against defaulters, forcing them to cut loans in half.

“We were lending an average of 4 billion shillings before Covid, but our lending declined by more than 50% in 2020 due to new government regulations put in place to regulate digital money lending after detection. of Covid-19 cases in the country, “says Mutiso.

DLAK is an association of 11 digital lenders, including Tala, Alternative Circle, Stawika Capital, Zenka Finance, MyCredit, Okolea, Lpesa, Four Kings Investment, Kuwazo Capital and Finance Plan.

The association said about six million customers borrow an average of 4,000 shillings for a period of 30 days.

Digital borrowers are twice as likely to default as those who take out conventional loans due to multiple borrowing and using the funds for consumption, according to a study by Digital Credit, Financial Literacy and Household Debt.

The low value loans and short repayment period resulted in high default rates and negative listings and digital borrowers accounted for 90% of Kenyans on the blacklist before the regulator intervened.

The CBK has revoked digital lenders’ approval to share data on CRBs that prohibited 337 unregulated digital mobile lenders from submitting the names of defaulting debtors to bureaus.

Mr Mutiso said digital lenders initially stopped offering loans in March and April, but later resumed targeting only borrowers who had a good repayment history.

“Most borrowers initially borrowed with no intention to repay,” he said.

Mr. Mutiso said that once regulations to control the sector are passed in parliament, allowing their return to the credit information sharing platform, they will resume full lending.

Mr Eric Oluoch, CEO of Quest Holdings, a debt collection company, said the move moved digital lending to banks that continue to access the mechanism.

“We are seeing the market move to banks who can still use the facility and are now the main lenders in this market. Most digital fintechs just stopped lending and tried to get their capital back, ”Oluoch said.

Kenya has witnessed a proliferation of digital lenders targeting banks and the unbanked, overwhelming borrowers with high interest rates and leaving regulators scrambling to keep pace.

Low-income households have been drawn to easily accessible mobile loans that have aggressive collection methods, including being too quick to list borrowers for very small defaults.

Most mobile loan takers ignore terms that include the lifespan of SMS notifications, full handing over of their personal data to third parties, and waiving their right to dignity.

The CBK kicked them out of the CRB mechanism, leaving only 39 banks, 14 microfinance banks, 1,353 unregulated institutions, 164 regulated institutions were allowed to continue using the mechanism from the end of August.

Metropol, one of three licensed CRBs, reports that the number of loans with overdue days greater than 90 days stands at 14 million out of 110 million loan accounts.

The number of blacklisted loan accounts doubled from 9 million to 14 million between August and January, even without digital loans.

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