Digital mobile lenders that are not regulated have started limiting lending to select customers to curb losses. This action comes after the Central Bank of Kenya (CBK) banned them from forwarding the names of loan defaulters to credit reference bureaus (CRBs).
This was confirmed by the chairman of Digital Lenders Association of Kenya, Kevin Mutiso who said that the lenders are now targeting only borrowers who have had a good repayment history.
“We stopped lending in March through April and May but we had to make decisions so we wrote off all bad loans. We are currently only lending to the best customers, those who understand that they have to pay,” he said. “Most borrowers initially were borrowing with no intention to pay back.”
According to Mr Mutiso, they will resume lending to all borrowers once the regulations to police the sector are passed in Parliament.
Digital borrowers are known to be stubborn as they are twice as likely to default as a result of multiple borrowing only to use those funds for regular consumption. So, it is quite reasonable that digital lenders would still be sceptical about allowing access to any borrower.
Over the last few years, the country has seen a surge in the number of digital lenders that have all been targeting the banked and unbanked alike. Unfortunately, these borrowers have ended up victim to extremely high interest rates leaving regulators scrambling to keep up.
The CBK had to intervene and kick a lot of lenders out of the CRB mechanism. By the end of August only 39 banks, 14 microfinance banks, 1,353 unregulated SACCOs and 164 regulated SACCOs were allowed to use the system.