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Digital lenders cut credit to Kenyans after CBK directive

By Patrick Alushula | December 1st 2021
By Patrick Alushula | December 1st 2021

The micro-lenders say the blocking lowered the customer motivation to repay loans. [Courtesy]

Digital lenders have reduced lending by nearly half to shield themselves from higher defaults. This is after the Central Bank of Kenya (CBK) blocked them from listing borrowers in the credit reference bureaus (CRBs)

The micro-lenders say the blocking effected on April 14 last year, lowered the customer motivation to repay loans. It also took away the ability to identify good and bad borrowers.

The lenders, under their lobby - Digital Lenders Association of Kenya (DLAK) said they were lending between Sh2 billion and Sh4 billion monthly to between four million and six million people but have since cut this.

DLAK chair Kevin Mutiso said in Nairobi yesterday that digital lenders are now disbursing between Sh1 billion and Sh2 billion monthly after the CRB lockout forced members to start cherry-picking customers with good repayment history within a given loan application regime.

“We used to lend up to Sh4 billion a month. Today, we are lending about half of that because we only picked the best customers. We now have about 1.5 million to two million customers,” said Mutiso.

“The number of borrowers and loan book shrunk because what the CRB order meant that we had to lock out more people. Strategic defaults also happened.”

Central Bank of Kenya Governor Patrick Njoroge. [David Gichuru, Standard]

Mutiso said the latest move to offer a 12-month CRB listing freeze for defaulters of all loans below Sh5 million risks plunging the banking sector into a similar occurrence.

He was speaking at the launch of survey findings meant to gauge the use of microloans.

According to the DLAK’s findings, 55.5 per cent of the sampled people said they borrow loans to boost the working capital while 24.8 per cent said the credit covers unexpected expenses. Another 13 per cent used it to pay school fees.

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