Digital lenders lock out ‘bad’ borrowers
A man angry at the contents of his phone. Mobile app lenders have reduced the number of their customers.
What you need to know:
- Covid-19 pandemic hit businesses and individuals hard, with many defaulting on their loans.
- Some 14 million mobile loan accounts have been listed with the many CRBs
Kelvin Mwangi, a resident of Ruiru, turned to a mobile lender when he needed medicine from a chemist late last year.
Mr Mwangi had an outstanding loan, so he quickly cleared it and attempted to borrow a bigger amount to buy the drugs.
He was shocked when his application was denied.
“I was very sick. I have been using the app for years and have always taken small loans, sometimes as low as Sh1,300. I depend on them,” he told the Nation.
“Now, I am unable to borrow even from other lenders. My loan limit has been downgraded to zero, meaning I am ineligible for such loans. I wish I could borrow as I used to.”
And this Ruiru resident is not alone.
Mr Humphrey Ashiono was similarly denied a loan at a time he needed the money most. It hit him like a tonne of bricks.
“It is very strange since no digital lender is willing to extend credit to me yet I have been borrowing for long. I have no idea why my borrowing limit has reduced to zero,” Mr Ashiono told this writer.
He, however, admits not settling his debts on time.
Millions of Kenyans who want to borrow money from dozens of mobile lenders have encountered rejections.
In a country many people have become dependent on the micro loans, it is a big deal.
A report released in June 2020 by research firm Geopoll titled “Financial Impact of Covid-19 in Sub-Sahara” said 36 per cent of Kenyan respondents said they relied on loans to cover basic expenses like food, while just 16 per cent said they rely fully on their incomes.
'High risk' borrowers
In April last year, the Central Bank of Kenya (CBK) issued a six-month order to mobile loan lenders to stop listing names of defaulters on Credit Reference Bureaus (CRBs).
The directive made many of the lenders to cut back on credit to “high risk” borrowers. The suspension was lifted on October 1.
Tala Regional General Manager Ivan Mbowa says mobile lenders have had to readjust their credit limits, changing their assessment of the credit-worthiness of borrowers.
It applies to individual borrowers and businesses, Mr Mbowa said.
A large number of debt limits were downgraded to zero after a sharp rise in non-performing loans.
Mr Mbowa told the Nation that Tala, one of the most popular mobile loan firms in Kenya, initially saw a rise in defaults when the effects of the Covid-19 pandemic manifested last year.
“The company could only lend to people who were likely to repay,” he said.
About 14 million mobile loan accounts have been listed with the CRBs, highlighting how deep-rooted borrowing has become since lending apps surfaced in Kenya barely a decade ago.
Best borrowers
“The pandemic pushed many businesses into the red. Most are unable to service their loans. We initially saw a sharp rise in loan defaults during the early period of the pandemic but the situation has since improved. Since August, for example, we have been gradually increasing disbursements,” Mr Mbowa said.
“I cannot disclose by what percentage we have reduced the number of our debtors, but we have changed the way we look at credit-worthiness. We are also checking their records before the pandemic.”
Digital Lenders Association of Kenya (DLAK) chairman Kevin Mutiso could not be reached for comment.
The association has about 20 members.
But Mr Mutiso had earlier said lenders are only giving loans to the best borrowers.
“We stopped lending in March, April and May but we had to make decisions. We wrote off the bad loans. We are only lending to the best customers, people who understand that they must settle their debts,” Mr Mutiso said.
“Many people initially borrowed with no intention of repaying.”
