Six broke university students were sitting in a room at Maseno University back in 2013, discussing how best to spend their Friday night.
Without money, however, their options were looking pretty limited and very dull. As they glanced down at their phones in the hopes of finding a miracle, one of the students came across a text message he had received from M-Shwari, a mobile loans product that had launched a year earlier.
He excitedly told his friends about it, and suddenly, their Friday night began to look a lot more interesting.
They quickly signed up and by making a small deposit into their M-Shwari mobile wallets, they unlocked loan limits to access quick cash.
In a matter of minutes, these students, who included this writer, had Sh6,000 between them.
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Safaricom and Commercial Bank of Africa (CBA) launched M-Shwari as a mobile-based loans and savings platform in November 2012. According to CBA, since then, the platform has grown to more than 16 million customers.
It has also expanded to Tanzania as M-Pawa, which launched in 2014 and has 4.9 million customers, and to Uganda in August this year as MoKash, which has drawn over 600,000 customers.
But the rapid adaptation of mobile loans in Kenya remains unrivalled.
The growing demand has seen financial services firm roll out product after product, with banks and private equity firms from as far away as the United States swooping in for a piece of the market.
And even as commercial banks roll out their own iterations of mobile lending platforms, less well-known brands, such as Tala, Saida, Brand and Mombo Mobile, are not willing to be left behind and believe they can carve their own niche market.
Tala, which rebranded from Mkopo Rahisi, is owned by California-based InVenture, while Branch is a Facebook-linked mobile application that allows users to borrow and repay micro-loans through Safaricom’s mobile money platform M-Pesa.
The latter firm earlier in the year raised $9.2 million (Sh920 million) in equity funding from Silicon Valley investors.
According to Standard Investment Bank, 2 per cent of loans offered by Kenya’s 11 listed banks are issued via mobile platforms – a cheaper route that promises to ease access for more customers.
As an extension of the banking sector, the mobile money market has also faced its watershed moment in the face of the law capping interest rates.
Lenders have had to change product tenure, interest rates and qualifications, as well as engage defaulters for recoveries and diversify to attract a higher market share. They are, after all, in direct competition with informal lenders who do not have to play by the rules capping lending rates.
Kenya’s biggest lender by assets, Kenya Commercial Bank (KCB), was forced to suspend lending on its platform, KCB M-Pesa, for a week following the implementation of loan caps, although management blamed the freeze on a glitch due to soaring loan requests.
When it got back online, the product had changed, with KCB removing three and six-month-long loans, and charging a monthly interest rate of 3.66 per cent, down from 6 per cent.
KCB M-Pesa was launched in March last year to compete with M-Shwari, and was signing up 40,000 customers a day at inception.
According to the bank’s CEO, Joshua Oigara, the platform now has seven million customers and handles 30,000 loan applications a day.
CBA, which says M-Shwari volumes remain unaffected by the law capping interest rates, added that its mobile loan product has remained the same even as other platforms introduce new fees that will burden consumers with excise taxes at 10 per cent.
“Since the product was launched in November 2012, we have always charged a one-time facility fee per loan. Customers have up to 30 days to repay the loan,” the bank said.
M-Shwari currently has 16 million customers and disburses loans for a period of 30 days (with a rollover option) at a one-off fee of 7.5 per cent.
The platform’s decision not to lower this fee in light of the loan caps is, however, being challenged in court by the Consumer Federation of Kenya.
Co-operative Bank, which was also charging a facility fee, backtracked and remodelled its product, M-Coop Cash, to conform to the law that puts interest rates at 4 per cent above the Central Bank Rate, which is currently at 10 per cent.
“We shall not levy any fees or other transactions charges, only interest that is compliant with the new law and pro-rated by the number of months,” the bank said in an emailed response to Business Beat.
“We have one and three-month tenor mobile loans, both of them aligned to the 14 per cent per annum rate, which translates to 1.16 per cent per month. No other fees or charges.”
M-Coop Cash last year had more than 2.7 million registered users and supported over 12.5 million transactions. It disbursed 183,000 loans.
In August, before the banking amendments were signed into law, the bank processed 16,594 loans worth Sh236 million. In September, when the law came into force, the bank processed 16,863 loans worth Sh239 million.
In the first three days of this month, Co-op Bank had processed 3,021 loans worth Sh42.4 million.
“With the new, reduced interest rates, this has now become a volumes game, not a margins one. We have even introduced a feature where a customer can pre-pay or top-up his or her loan,” the bank said.
“The reason we are not charging any transaction fees is so that the customer does not suffer excise duty tax, which is applied to transaction fees. Banks that have introduced some transaction levies will force their customers to bear the additional tax.”
Equity Bank has also reconfigured its product, EazzyPay. Its mobile loan’s terms and conditions now apply an appraisal fee on new loan applications, and on requests to roll over a loan if a customer has not raised the repayment amount by the time it is due and wants to borrow a second loan to cover it.
“Equity Bank has two mobile loans – Eazzy loan and Eazzy Plus loan. A customer can access the two loans at the same time, and can top up the Eazzy loan if he/she has not exhausted his/her limit,” the bank said in an email on the changes to its product.
The Eazzy loan limit is now Sh200,000, payable within a month, with customers charged a prescribed interest rate, and a loan appraisal fee on fresh application at 1 per cent of the loan amount, which is recoverable upfront.
Customers will also be charged excise duty as imposed under the Excise Duty Act of 10 per cent on the loan appraisal fee (basically 10 per cent of the 1 per cent appraisal fee), which is also recoverable upfront.
The Eazzy Plus loan has a limit of Sh3 million and is payable within 12 months. It attracts an appraisal fee of 2 per cent upfront for loans repayable between two and three months, or 3 per cent for loans repayable between four and six months – on top of the interest rate charged.
In addition to revising its rates, Equity Bank, which offers loans on its own Sim tool kit (STK), has also changed its approach by designing an application that runs on mobile phones that do not have the lender’s Equitel Sim cards.
“To maximise on Eazzy loans, the bank has also extended mobile loans to customers who do not have Equitel lines. They can now access the loans via the Eazzy App available from any smartphone’s app store,” Equity said.
The bank added that it had improved interoperability with other platforms, such as M-Pesa, Airtel Money and Orange Money
By going the mobile app route, Equity has reached into a space dominated by microlenders like Branch.
“We recently reached number three in the Google Play Store in Kenya. Given this high demand, we are expanding throughout East Africa and looking further afield to other regions of the world,” Branch’s managing director, Sofia Zab, said.
She added that this demand is partly a result of the platform making loan decisions instantly.
The mobile loans sector has become an attractive one for financial services companies because of Kenya’s high mobile phone penetration.
The Communications Authority of Kenya (CA) puts mobile subscriptions at 39.7 million in a population of about 44 million people.
Further, a massive Sh957 billion was moved through the country’s mobile money platforms in the three months to June this year, according to CA. This works out to an average of about Sh10.5 billion a day.
The value of transactions in the previous quarter to May was Sh840.3 billion – or Sh9.2 billion daily.