• Sat. Jul 2nd, 2022

Half of cell phone borrowers in default


Economy

Half of cell phone borrowers in default


New survey shows 50.9% of mobile loan borrowers have defaulted. PHOTO FILE | NMG

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Summary

  • Household survey results conducted by Central Bank of Kenya (CBK), FSD Kenya and Kenya National Bureau of Statistics (KNBS) show that 50.9% of respondents defaulted on their mobile loans .
  • The growing defaults emerged during a period when digital lenders flooded Kenya with high interest rates of up to 520% ​​per year.
  • Workers and businesses have defaulted on loans worth billions of shillings following stringent measures imposed to contain the spread of the coronavirus.

More than half of loans taken through mobile phone platforms are in default following Covid-19-induced job cuts and business closures that have pushed thousands into a debt trap , reveals a new investigation

Household survey results conducted by Central Bank of Kenya (CBK), FSD Kenya and Kenya National Bureau of Statistics (KNBS) show that 50.9% of respondents defaulted on their mobile loans .

The growing defaults emerged during a period when digital lenders flooded Kenya with high interest rates of up to 520% ​​per year.

The economic hardships of Covid-19 also saw an average of 41.8% of borrowers default on loans from friends and relatives, while 40.8% were unable to pay off goods borrowed on credit. from traders.

The smallest defaults for loans borrowed outside the traditional banking system were employee advances from employers at 11.3%, given the ease of recovering money from monthly salaries.

Workers and businesses have defaulted on loans worth billions of shillings following stringent measures imposed to contain the spread of the coronavirus.

“The top three credit providers for whom a majority of respondents said they defaulted on a credit facility are; mobile bank loan (including Fuliza), digital app loan, and family / friend / neighbor loan, ”the investigation report said.

“The employer’s loan is the best performing, perhaps reflecting the withholding system, that is, the deduction of the loan when paying the salary / wages. “

Saccos credit also recorded a below-average default at 16 percent, due to the use of collateral and collateral, as did credit from input suppliers or buyers of agricultural products.

Personal or business bank loans registered 22.1% default rate, survey finds, but separate CBK data puts defaults at 13.6% of total loans or 435 billion shillings .

The investigation defines a default as including missing a scheduled repayment, paying late, and not making any payments at all.

Mobile banking and digital loans are issued without collateral, making them vulnerable to borrower default.

They are also often taken as an emergency measure by cash strapped individuals or businesses, resulting in a higher risk of default.

Many Kenyans are now finding that they can get loans within minutes, with banks relying heavily on algorithms that financial profile clients in an attempt to minimize the risk of default.

The rise in the number of digital non-performing loans had triggered the rise in the number of defaults reported to one of Kenya’s three credit reference bureaus (CRBs), hurting borrowers’ chances of being able to take more.

To avoid defaults, borrowers have used loans from a number of companies to settle loans owed to rival digital lenders, racking up their debts and getting negatively listed by CRBs.

But last year, the CBK offered relief to digital loan defaults.

The banking regulator has banned unregulated digital mobile lenders from transmitting the names of defaulting debtors to CRBs and ended the blacklist of borrowers owing less than 1,000 shillings.

The CBK said the dissociation of unregulated digital mobile lenders from CRBs was the result of public outcry over the widespread abuse of the Credit Information Sharing Mechanism (CIS).

This means that only banks like KCB, Co-operative Bank and NCBA Group as well as micro-financiers and deposit banks are allowed to blacklist defaulters with the country’s three CRBs – Metropol, TransUnion and Creditinfo International.

Companies like Tala and Branch have been stranded at a time when most of the negative-listed accounts are linked to mobile digital borrowers.

Banks are also not allowed to list defaulting debtors with overdue loans of less than 1,000 shillings, which increases the chances of borrowers being able to borrow more.

The defaults came at a time when industries and other businesses had scaled back operations in response to the infectious disease, resulting in layoffs and unpaid leave for retained staff as profitable businesses suffered losses.

Nearly 730,000 jobs were lost last year when Kenya imposed coronavirus-induced closures that resulted in layoffs and pay cuts, but the country’s economy is now recovering.

Growth fell to 0.3% last year, from 5.0% in 2019.

The recovery has started, but there are fears the pace may be slowed by a shortage of Covid-19 vaccines and new waves of infections. Growth is expected to be 6.1% this year and 5.6% in 2022, according to the CBK.

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