Mobile lenders have opposed CBK’s proposed amendment that seeks to cap interest rates. Players in the mobile lending space say that capping interest rates would hurt credit flows in a lending sector that relies on risk-based interest rate models.
Tala Regional Manager and Digital Lenders Association of Kenya director Ivan Mbowa says that loan pricing in the mobile lending space is “an actual representation of the risk involved in providing unsecured and no-collateral”.
Mbowa adds that interest rates on mobile lenders cannot compare with bank lending charges since they do not provide long term loans.
“Whenever people start to say that 15 per cent is like X per cent per annum, they are making an unfair comparison because we are not like banks who are providing this loans for at least 12 months. It may seem relatively high, but it’s not an interest rate,” Business Daily quoted Ivan Mbowa.
He also says that banks and mobile lenders must have different pricing models, adding that people borrowing for consumption should have different rates from those who borrow for business.
Predatory Lending, Unruly Behavior Among Mobile Lenders
Central Bank is looking to pass a bill that will control the interest rate and loan charges in mobile lenders, seeking to protect consumers from predatory lending.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services. CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
The central bank also locked out mobile lenders from accessing the Credit Reference Bureau (CRB) database earlier this year over complaints of misuse of data. Central bank Governor Patrick Njoroge points out that mobile lenders contribute only 0.14% of the total credit market in Kenya. However, they amount to 90% of noise on defaulters, causing pain to borrowers by calling contacts to recover their funds.
Nevertheless, Mbowa says mobile lenders do not rely on CRB information to prequalify their customers.