CBK advances talks with banks to lower cost of mobile loans


By Edna Mwende

The Central Bank of Kenya (CBK) has said that it has advanced its talks with banks to ensure low cost of mobile phone-based loans. The pricing of some of the mobile phone-based loans as reported by Business Daily includes a huge component of fees, which is outside regulatory control with the CBK Governor Patrick Njoroge saying that the discussions go beyond the interest on loans to processing charges and facilitation fees.

This comes at a time when banks are being accused of burdening borrowers with expensive mobile based loans and ultimately weighing them down with debt.

“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,” Dr. Njoroge said as quoted by the Business Daily.

KCB (KCB M-Pesa), Commercial Bank of Africa (M-Shwari), Equity Bank (Equitel), Co-operative Bank (M-Co-op Cash) and Barclays Bank of Kenya (Timiza) are some of tier-one commercial lenders which offer instant mobile loans.

M-Shwari, introduced by Safaricom and Commercial Bank of Africa in 2012 for example charges a facilitation fee of 7.5 percent on credit regardless of its duration within a month. KCB-Mpesa loans include a one-off 2.5 percent loan negotiation fee according to the Business Daily report.

Banks and other mobile phone-based lenders are currently able to skirt a government cap on interest of four points above the central bank’s benchmark interest rate, which now stands at nine percent capping loans at 14 percent. Therefore a 7.5 percent M-Shwari loan equates to an annualized interest rate of 90 per cent with the shortest loan repayment period being a week.

Dr. Njoroge also said that banks need to be appreciative of the burden and concerns to the customers as the law does not give them any specific regulations.

The local daily’s similarly said that the interest rate cap has stifled traditional bank lending, opening the market for the mobile app lenders.

ALSO READ: KCB Bank upgrades mobile money platform


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