CBA maintains it doesn't charge interest on M-Shwari

An M-shwari branded bus shelter in Nairobi.

NAIROBI: Commercial Bank of Africa (CBA) has maintained that what it charges on its mobile loans is not an interest rate, but a facilitation fee.

As it moved to keep off the new banking laws on M-Shwari, a trailblazer in the mobile loans sub-sector, CBA said the 7.5 per cent fee customers are charged is a one-off facilitation charge on the money disbursed.

The lender added that the tenor of M-Shwari loans is just 30 days, while competing products have longer term limits.

“M-Shwari, as approved by the regulator, does not attract any interest rates on borrowing. What we levy is a 7.5 per cent facilitation fee. It is therefore not subject to the new provisions of the Kenya Banking Act in that respect. However, we will increase the interest we pay on M-Shwari deposits,” said CBA CEO Isaac Awuondo in a statement.

The move now sets the lender on a collision course with consumers, as it comes at a time when banks are changing terms to ensure the law capping interest rates does not hurt their bottom line too drastically.

The Consumer Federation of Kenya (Cofek) has already threatened to go to court over the M-Shwari issue.

“The bank has simply changed the name from interest to facilitation fee, and this is wrong. We gave them upto today evening [yesterday] to comply. We will be going to court on Wednesday if they do not,” Cofek Secretary General Stephen Mutoro said on phone yesterday.

“The law is clear that it applies to all loans. Whether offered directly or indirectly, any loan from a licensee of the Central Bank of Kenya via an agent and/or a mobile phone or any other technology is not exempt from the 4 per cent over and above the Central Bank Rate.” M-Shwari receives about 420,000 loan requests a day; of these, it disburses money to about 70,000, showing the huge potential in the mobile loan space.

On their part, lenders have argued that Kenya’s financial inclusion gains are now under threat from the new banking loans. They see the margins to be made as too thin to sustain a viable mobile money business, which may eventually force banks to rethink their strategy on mobile lending and deposit products, such as M-Shwari and the KCB M-Mpesa account.

They say lending at 14.5 per cent will already exert pressure on commercial banks, some of which have been offering both secured and unsecured lending at between 17 per cent and 22 per cent, and therefore may not be willing to offer unsecured mobile loans at the same rate.

But Equity threw the sector in a spin last week after it announced that it would include mobile phone credit among the facilities to be regulated by the new law.

This saw KCB make an about turn to follow cue later in the week, announcing via short messages to customers that it would offer mobile loans at 1.2 per cent per month.