Consumers lobby sues CBA over Mshwari mobile loan charges

NAIROBI, KENYA: The Consumers lobby group has finally sued Commercial Bank of Africa (CBA) over the controversial mobile loan rates.

Through a class action suit filed on Tuesday, the Consumer Federation of Kenya (Cofek) also sued the market regulator, the Central Bank of Kenya (CBK) for what it terms as non-compliance with the lending rates on Mshwari service.

It has accused the top tier lender of circumventing the law by using the term 'facilitation fees' instead of interest rates, which is against the consumer interests.

The lobby also wants the bank to refund consumers for the excess interest it has been charging consumers since the new law capping interest rates came into force last month.

"At 7.5 per cent 'per loan' from Mshwari of 30 days (read per month), considering consumers borrow continuously, this translates to a whopping 90 per cent per annum! Consequently, the 1st Respondent (CBA) is over-charging consumers by at least 75.5 per cent per annum as opposed to the legal 14 per cent a for the time being," the petition reads in part.

Cofek argues that CBA's main rivals--Equity Bank and Kenya Commercial Bank (KCB) have already complied with the law but the lender has chosen to comply with specific sections of the law.
Cofek wants the court to declare the rates charged by CBA as illegal and unconstitutional thus null and void.

"While the 1st Respondent (CBA) is accurate on the applicable savings rate of 7.35 per cent per annum interest on savings, in line with the Banking Act 2016, it deceptively states that lending rate is unchanged at 7.5 per cent "per loan," the suit reads.

"This fails the compliance consistency between interest on savings and on lending rendering the 1st Respondent liable to selective application of the law ostensibly for reasons other than public and consumer interest," it adds.
Justice Onguto certified the case as urgent and directed service to parties for an inter-parties hearing before Justice Ochieng of the Commercial Court on October 10.

In petition number 404 of 2016, Cofek argues that it is deeply concerned at the partial and selective compliance with the Banking Act, 2016 by CBA on its "Mshwari" Loan transmitted via mobile phones in partnership with Safaricom Limited.

CBA has maintained its M-Shwari product is not developed on an interest model and is therefore exempted from the new banking law that caps interest rates.
CBA argues that its model levies facilitation fees and not interest charges.

He reckoned that if the company is forced to switch to the interest model it will have no option but to shut down its popular M-Shwari product.

M-Shwari was launched by CBA and Safaricom in 2012, and is currently the market leader, with almost 16 million customers registered on the service.

It has been one of the biggest success stories in the sector, pushing CBA into the top tier banks. It has also been a model that has allowed other banks to copy as they go after the risky and downstream loan market, which has been a preserve of loan sharks.