(3 minutes read)
· The Central Bank of Kenya banned the unregulated digital mobile lenders from forwarding the names of loan defaulters to credit reference bureaus (CRBs)
· Digital Credit, Financial Literacy and Household
Indebtedness, an organization which looked into the behavior of digital borrowers has conducted extensive research on the issue and firmed up their findings
· One important finding was that most of the loans defaulted by Kenyans are taken from mobile lenders with digital lenders making up 90 per cent
The Central Bank of Kenya banned the unregulated digital mobile lenders from forwarding the names of loan defaulters to credit reference bureaus (CRBs). By forwarding the names of defaulters, the central bank felt could lead to further growth in the non-performing assets in the banking sector and harassment of genuine defaulters who could not repay the loans due to exigencies.
According to Digital Lenders Association of Kenya (DLAK) Chairman Kevin Mutiso, their members stopped offering any loans to defaulters in March and April last year. But later resumed, targeting only the borrowers who had a good repayment history. The lenders also wrote off loans absorbing losses incurred. There were a good number of borrowers who consciously defaulted on their loans.
Bankers feel that digital borrowers are twice as likely to default on loans as those who take conventional loans. They normally avail multiple borrowings and use funds for consumption. Digital Credit, Financial Literacy and Household Indebtedness, an organization which looked into the behavior of digital borrowers has conducted extensive research on the issue and firmed up their findings. One important finding was that most of the loans defaulted by Kenyans are taken from mobile lenders with digital lenders making up 90 per cent.
Menace of proliferation of digital lending is a common phenomenon these days in many developing countries, leading to heavy defaulting since no proper inquiry is made about the repayment capacity of the borrowers. There are reported cases of lenders charging exorbitant rates of interest and indulging in all types of illegal methods to make the borrowers repay the loans. There are also instances when the loans taken not only are defaulted but not paid at all. The mobile loan takers most often do not realize conditions that include lifetime of SMS notifications, full surrenders of their personal data to third parties and waiver of their right to dignity.
Metropol, one of the three licensed CRBs, said the count of loans which have accumulated arrears greater than 90 days stands at 14 million of the 110 million loan accounts. The number of blacklisted loan accounts doubled from nine million to 14 million between August and January. Most of the defaults could be due to the impact of Covid-19 pandemic.
