Kenyan digital lenders agreed to waive late repayment fees for borrowers to protect them from the economic effects of the Covid-19 pandemic even as it emerged that inflated fees levied by digital credit apps were pushing forward. many borrowers in a debt trap.
A recent market research by analysts at the Kenyan investment bank EFG Hermes shows that the bulk of borrowing on digital platforms is under $ 50, with an amount as low as $ 1.50, while the cost Lowest credit total for a digital loan from an app is 352 percent (on an annual basis).
“The Total Cost of Credit (TCC) for digital loans is very high, especially when you annualize the daily, weekly, bi-weekly and monthly rates that these providers offer to their potential borrowers,” the analyst said through their report. survey dubbed Kenya by Numbers dated February 19.
Although the upsurge in mobile banking and digital applications have become an important part of Kenya’s credit system, households and owners of small and medium-sized enterprises (SMEs) have taken advantage of their mobile phones to access fast loans, for most without adequate information on the cost of installations.
“In addition to disproportionately high interest charges for low-income people to access credit, we believe digital lenders haven’t done enough to educate their clients on these new products,” according to Hermes.
Available data shows more than 3.2 million Kenyans have been blacklisted by the country’s credit reference bureaus (CRBs), up from 2.7 million last year, most of them linked to consumers of digital loans.
Last week, the Digital Lenders Association of Kenya (DLAK), which represents the country’s 17 leading digital lenders, announced that it had waived late repayment fees as part of measures to support clients during this time of Covid-19 epidemic.
“This move will cushion customers in distress, as the economy slows down after disruptions to their day-to-day operations that could have had an effect on regular revenue streams,” DLAK said.
According to Ivan Mbowa, Managing Director of Tala, one of the country’s digital lenders and one of the board members of DLAK, the waiver period will be maintained as defined by the various lenders but will ultimately be guided by the Covid-19 events as they unfold.
“Tala is happy to support the association’s decision to waive late fees as it helps clients manage their financial obligations in a less stressful way,” said Mbowa. East Africa.
“We continue our commitment to serve our existing reputable customers and we are also committed to developing unique payment terms that meet the needs of our customers during this time and ensuring that our customers can maintain their good relationship with Tala. . “
It is argued that the use of informal credit rose to 59% in 2019, from a low of 19.2% in 2013, largely due to borrowing from merchants and digital lending applications, while on the formal side, recourse to credit rose from 13.2% to 22.7%. percent over the same period can be explained by the launch of mobile bank loans like M-Shwari (NCBA), KCB M-Pesa (KCB) and Eazzy Loan (Equity Bank).
In the banking sector, nonperforming loans increased by 12% last year, up from 9.5% in 2017, leading to real estate auctions and an increase in the number of defaults.
Default rates are also expected to rise in the wake of the coronavirus outbreak that has hit consumer demand and forced companies to cut jobs and downsize operations.
Kenyan lenders have also agreed to a package of measures to protect borrowers from economic hardship linked to the deadly coronavirus.
Lenders have decided to relieve borrowers from their personal loans based on their individual circumstances resulting from the pandemic.
As a result, banks will consider borrowers’ requests to extend their loans for a period of up to one year, beyond issuing moratoriums on loan disbursements, while SMEs and corporate borrowers may request a restructuring of their loans according to their respective circumstances arising from the pandemic.
Banks will also bear all costs associated with extending and restructuring loans and waiving all balance counseling fees to facilitate increased use of mobile digital platforms.
On March 25, President Uhuru Kenyatta proposed the temporary suspension of the law requiring defaulting debtors to be registered with CRBs as part of measures to protect workers and businesses from the effects of the virus.
This will save troubled borrowers who fail to repay loans due from April 1, 2020.
Kenya is growing rapidly in the digital space, according to global consulting firm McKinsey, and the country’s digital segment revenues are expected to exceed $ 5 billion by 2022, a period that the number of Internet connections to across Africa is expected to overtake. the billion dollar mark.