Kenyan digital lenders feel the heat of virus

Saturday April 11 2020

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 lenders in the country announced that they had waived the late repayment fees as part of the measures to support customers during this period of the Covid-19 outbreak.

“The move will cushion the customers who are under distress, following the slowdown in the economy after disruptions to their day to day operations that could have had an effect on regular income flow,” said DLAK.

Unique arrangements

According to Ivan Mbowa the general manager for Tala, one of the country’s digital lenders and one of the board members at DLAK, the waiver period will be upheld as set by the different lenders but ultimately being guided by the events of the Covid-19 as they unfold.

“Tala is happy to support the association’s decision to waive the late fees as this helps the customers manage their financial obligations in a less stressful way,” Mr Mbowa told The EastAfrican.

“We continue with our commitment to serving our existing customers of good standing and are also committed to developing unique payment arrangements that meet our customers’ needs during this time and ensuring that our customers can maintain their good relationship with Tala.”
It is argued that the uptake of informal credit increased to 59 per cent in 2019 from a low of 19.2 per cent in 2013 largely due to borrowing by shopkeepers and digital loan apps while the formal side the pickup in credit uptake to 22.7 per cent from 13.2 per cent in the same period can be explained by the launch of mobile banking loans like M-Shwari (NCBA), KCB M-Pesa (KCB) and Eazzy loan (Equity Bank).

In the banking industry non-performing loans increased by 12 per cent last year, compared with 9.5 per cent in 2017 prompting property auctions and rise in the number of loan defaulters.

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

Kenyan lenders have also agreed a set of measures to cushion borrowers against the economic hardships linked to the deadly Coronavirus.

Proposed suspension

The lenders resolved to provide relief to borrowers on their personal loans based on their individual circumstances arising from the pandemic.

As a result, Banks will review requests from borrowers for extension of their loans for a period of up to one year, over and above issuing moratoriums on loan instalments while SMEs and Corporate borrowers can apply for restructuring of their loans based on their respective circumstances arising from the pandemic.

The banks will also meet all the costs associated with the extension and restructuring of loans and waive all charges for balance inquiry to facilitate increased use of mobile digital platforms.

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.

This will save distressed borrowers who fail to service loans due from April 1, 2020.

According to global consultancy firm McKinsey, Kenya is experiencing rapid growth in the digital space and revenues from the country’s digital segment are expected to surpass the $5 billion mark by early as 2022, a period which the number of Internet connections across Africa are expected to surpass the $1 billion mark.