After the Central Bank of Kenya issued directives restricting unregulated digital mobile lenders from forwarding names of defaulters to credit reference bureaus, the sector has embarked on issued mobile loan facilities, but to only those Kenyans with good repayment history. The popularity of these lending apps had grown among Kenyans immensely, due to their nature of offering quick loans without any form of collateral. In some cases, all someone had to do was to provide access to contact list on their android mobile phones and a copy of MPESA statement with the reason of the loan, and it could be processed in minutes.
Instead of going out of businesses following the directive from the CBK, some unregulated digital mobile lenders resorted to locking out majority of Kenyans they deemed high-risk or with poor loan repayment. According to the sector’s chairman, Kevin Mutiso, they firms ended offering loans sometimes in March of 2020, but later resumed allowing only borrowers with a good repayment history.
Mutiso further said they had to write off, all bad loans and are currently only lending to best customers, those who understand they’ll need to pay. According to the Digital Lenders Association Chairman, most borrowers had no intention of paying back when requesting for these loans. Mutiso is also hopeful to return in the market once regulations manning the sector are passed in the parliament.
According to a research done by Digital Credit, Financial Literacy and Household indebtedness, digital borrowers are twice as likely to default on loans as those who take traditional loans, mainly because they tend to take multiple loans for consumption. A large number of loans defaulted so far, estimated to be in excess of 90 percent, were taken from digital mobile lenders.
Digital lender’s popularity rose tremendously, despite having some of the industries exorbitant interest rates. Notably, low-income households were lured in the sector with very accessible loan facilities that were later put up for recovery with very aggressive recovery methods such as lifetime SMS notifications.