Roundup: Kenya registers explosion of digital credit in 2018

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NAIROBI, Dec. 26 (Xinhua) -- Kenyan banks continued to make billions of shillings in profits in 2018 despite the capping of interest rates about two years ago.

But that is not the remarkable thing that happened in the east African nation's financial sector in 2018; the rise and rise of digital credit is what has left an outstanding impression in the industry this year.

The year can aptly be described as a "digital credit year" as the east African nation not only experienced an explosion in the number of service providers but also digital lenders aggressively came out to market their products.

As the year draws to an end, the number of digital lending apps in Kenya stands at about 50, with nearly half of the players having joined the industry this year.

The Majority of the lenders are start-ups and several Kenyan banks has also joined the fray this year as they sought to protect their turf and cash in on high interest rates.

Kenya Commercial Bank, Equity Bank, Commercial Bank of Africa, Family Bank are among the formal lenders currently offering digital credit.

But they are facing stiff competition from the independent digital lenders, some of which are unlicensed and disburse loans between 500 shillings (0.49 U.S. dollars) and 980 dollars to applicants.

Digital lenders in the east African nation charge one-off interest rate of between 7 percent and 15 percent, with the loans payable from a day to a month.

The rates are not subject to interest capping at 4 percent above the Central Bank's rate that currently stands at 9 percent. Banks are charging a maximum of 13 percent per annum on loans, the reason why many have started the digital loan apps.

The explosion has come with mixed fortunes though for the east Africa nation's residents, empowering some while sinking others into debt.

"I have enrolled to four apps, and from one of them I can borrow 30,000 shillings and the rest between 4.9 dollars and 49 dollars. I borrow mostly to buy stock for my business," vegetable store operator Grace Mutuku said on Wednesday.

The trader, who is based in Komarock on the east of the capital, noted that while the interest rates are higher, the fact that the loans are instant and one can borrow from multiple lenders without any restriction is what has made her use the apps.

"I think this is the best thing to have happened in the loans' sector. Initially, I relied on micro-finance for loans, a process that took time and needed guarantors but the loan apps changed things for the better," she said, noting she started using the apps in March after her husband introduced them to her.

But the story is different for some borrowers, who have taken money from multiple lenders, failed to repay and have themselves listed in industry data as un-creditworthy, a move that locks them from several services, including those offered by the government.

"I will repay a loan I took five months ago when I get money. My name is already listed as a defaulter by the Credit Reference Bureau and it bothers me," Bernard Ochieng, a mason, recounted, noting sometimes he borrows to bet.

About 6.5 million Kenyans have taken mobile loans and half of them are repeat borrowers, according to a recent joint survey by the Central Bank of Kenya, Kenya National Bureau of Statistics and FSD-Kenya.

The survey noted that 35 percent of the digital borrowers use the money to meet their day-to-day needs, but the most, 40 percent, use it for business.

Ernest Manuyo, a business management lecturer at Pioneer Institute in Nairobi, said that digital lenders top the list of disruptive technologies that shaped the banking sector in 2018.

"We are seeing the apps cannibalize business for banks, micro-finance institutions and even savings groups. Kenyans have virtually become digital borrowers and the number of users and lenders has soared this year," he said, noting the faster growth in service providers is offering traditional lenders stiff competition.

In September, Kenyan financial sector regulators including the Central Bank, Capital Markets Authority and Insurance Regulatory Authority acknowledged that digital credit channels have expanded inclusion by reducing borrowing constraints, warning this is happening without proper supervision and thus comes with risks.

"Digital credit predisposes the economy to risks that include money laundering, terrorist financing and technology risks," the regulators noted. Enditem

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