Digital disruption in finance has re-opened the Pandora’s Box allowing for the slow but sure resurgence of expensive loan culture in the Kenyan economy.
It is represented mainly by innovation around financial technologies (FINTECHs).
“The easy availability of credit has tempted many to start borrowing from multiple lenders. Today, the average number of lending accounts per individual is six.
“As individuals increase their appetite for debt, many begin borrowing from Peter to Paul. This does not however reduce their exposure as it rises to correspond to increases in interest charges.
“Eventually, this will likely lead to the tipping off of borrowers to become gross defaulters,” said Metropol Credit Referencing Bureau (CRB) Sam Omukoko.
Despite legislation through amendments to the Banking Act in 2016, commercial banks have crept into the digital lending space to circumvent government policy.
The law had introduced a ceiling on interest rates at 4 percent above the prevailing Central Bank Rate (CBR) holding banks back from charging exorbitant interest charges.
Lenders have now embraced the very disruption that took a swipe at their loan books to render credit issuance through the collateral free, algorithm based channels.
In spite of pushing the much needed credit to riskier borrowers who include individuals and small and medium enterprises (SME’s), the penetrative credit issuing scheme has left in its wake more-debt ridden Kenyans.
Omukoko who spoke during his firm’s issue of its 2019 economic forecast on Thursday said the trend is likely to back suspicion on the potential for mass loan defaults to propagate a near total freeze on lending by financial institutions in the long-term.
“Every credit provider should share data with the bureau. This should enable lenders to weigh their options when lending to borrowers who already find themselves in debt. The danger is having FINTECH lenders outside the scope of CRBs as many will continue lending blindly.”
Inter Region Economic Network (IREN) Director James Shikwati warns of the prevalence and depth of digital lending but backs further innovation on the scene to scale up the competition with a view of driving down debt servicing costs as opposed to pursuing a cap on the rates charged by the digital lenders.
“Digitalization affords more players with the opportunity to finance the private sector. The creation of those possibilities nullifies the idea of banks getting too comfortable as dominant players in mobile based lending,” Mr. Shikwati told Citizen Digital.
Mobile lending has grown to become a second shelter to banks’ loans/advances portfolio to add to the lenders’ guaranteed investments in government fixed-income instruments which include bonds and Treasury bills.
The banks have raised the stakes to battle the non-deposit taking and mobile only lenders to launch look-a-like products.
Barclays Bank launched Timiza- a mobile based lending application in early 2018.
KCB relaunched its M-pesa based credit portal late last year before partnering the Commercial Bank Africa (CBA) to co-operate Fuliza- an M-pesa overdraft service alongside Safaricom.
Metropol projects Fuliza to advance up to Ksh.100 billion in its first year of service.