Banks put on the spot for mimicking ‘rogue’ digital lenders

Commercial banks have been put on the spot for resembling digital lenders by saddling Kenyans with exorbitant mobile loans.

This is as the traditional lenders also opt for loan issuance via mobile applications which present avenues to slap customers with hidden fees which have the impact of raising loan costs.

Senate’s Finance and Budget Committee has asked the Central Bank of Kenya (CBK) to furnish it with details on the cost of loans issued by local banks via mobile channels.

“Regulated entities are equally charging close to 70 or 80 per cent in annual terms which is immoral for the lack of a better term,” Kericho Senator Aaron Cheruiyot said during the virtual appearance of CBK Governor Patrick Njoroge at the Committee’s hearing on Tuesday.

While digital loans have been widely tied to rogue and unregulated lenders, it is traditional commercial banks that reign supreme in mobile loan issuance.

Products such as Fuliza and M-Shwari which represent partnerships between local commercial banks and telco operators have taken Kenyans by storm with millions relying on credit issued on the channels for financial support.

For instance, according to data from Safaricom, Kenyans ‘fulizad’ Ksh.149.4 billion in just six months between March and September in comparison to Ksh112.2 billion at the same time last year.

Previous surveys have also proved Kenyans rely more on mobile loans issued by traditional banks than is the case with digital lenders.

An August survey by MSME Consultancy Viffa Consult for instance ranked KCB and NCBA backed Mshwari and Fuliza as the most accessed mobile credit providers by SMEs in 2020.

The survey shows the two bank-backed applications have eaten into the digital lenders’ share of SME borrowers replacing Tala and Branch who had led the pack in 2019.

Senate’s Finance and Budget Committee has its fears premised on the interest rates levied by banks for the loans on an annualized basis which they worry may be a carbon copy of those passed on by unregulated lenders.

Disclosures on Fuliza and M-Shwari however only show interest rates on a monthly and daily basis.

Fuliza for instance a facility fee of 1.083 per cent for an overdraft facility and a daily administrative fee capped at Ksh.30 for each day a loan remains unpaid.

Loans on Mshwari and KCB M-Pesa meanwhile attract a facility fee of 7.5 per cent according to publicly available disclosures.

Data from the CBK also shows licensed digital lenders are playing a significant loan in the issuance of short-term credit facilities.

For instance, banks have 4.4 million loan accounts with KCB and Equity banks leading the way with 1.7 million and 305,000 mobile loan accounts.

In comparison, the CBK has deemed the contribution of rogue lenders to new loan offers to Kenyans as negligible even as they are accused of inflicting the most pain to Kenyans.

“These are little fleas. Their output in terms of credit is less than 0.14 percent, that’s less than the smallest bank around but in terms of noise and pain to Kenyans they are at 90 percent,” CBK Governor Patrick Njoroge said in April.

On Tuesday, the Governor said the regulator remains on an in-house cleanup mission as he admits to the lenders own complacencies.

“The culture of banks has to change. When they look at a customer, do they see a customer or someone they can rob from,” he said.

In March last year, the CBK rolled out the Banking Sector Charter which envisages new banking metrics such as the adoption of credit ratings in loan pricing and transparency on the cost of lending.