The Central Bank of Kenya (CBK) has intensified its talks with banks in Kenya, to lower the costs of mobile phone based loans.
This is coming after claims by users that the mobile phone based lenders, are crippling borrowers with expensive debt.
Governor of the Central Bank of Kenya (CBK) Patrick Njoroge, stated that the talks with banks in Kenya, go beyond just the interest on loans to processing charges and facilitation fees.
Some of the the Tier-One commercial banks which offer instant mobile loans include, Barclays Bank of Kenya (with Timiza), Co-operative Bank (with M-Co-op Cash), Commercial Bank of Africa (with M-Shwari), KCB (with KCB M-Pesa), and Equity Bank (with Equitel).
The rates employed by some of the mobile phone based loans, include a huge amount of fees, which are outside the regulatory control.
Dr. Patrick Njoroge said, “This is a bit more complicated. The issue is not just to look at it as interest rate component, but other charges as well. The charges are not part of that interest cap thing,”.
M-Shwari which was introduced by Safaricom and the Commercial Bank of Africa in 2012, currently charges a ‘facilitation fee’ of 7.5 percent on loans regardless of its duration within a month.
A 7.5 per cent M-Shwari loan equates to an annualised interest rate of 90 percent, with its shortest loan repayment period, being one week.
KCB-Mpesa loans include a one time loan negotiation fee of 2.5 percent.
Banks and other mobile phone based lenders are currently able to escape a government cap on interest of four points above the central bank’s benchmark interest rate, which is currently at nine percent, effectively capping loans at 14 percent.
Dr. Njoroge made it known that, “This is where we are working with banks … to go beyond the law. You have seen how we have been doing things in terms of customer centricity, the way they have to relate to their customers,”.
He added that, “The law itself does not tell them to do XYZ, but we are telling them to be appreciative of the burden to the customers and concerns of customers.”
Kenyan Lawmakers, have in recent months called for the regulation of mobile phone based lenders, stating that they have become predatory and currently operate like shylocks.
The Interest Rate Cap which was introduced in 2016 to stop banks from charging high interest rates, has succeeded in stifling the traditional bank lending system.
The ‘downside’ however, is that it opened the floodgates for the mobile app lenders.
