How mobile cash lenders fleece you using apps

In Summary

• Informal platforms are charging interest rates of close to 200 per cent.

• Banks are charging monthly interest rates of between 4.08 to 7.5 per cent translating into APR of 43-90 per cent.

A bundle of money. Photo/Elkana Jacob
A bundle of money. Photo/Elkana Jacob

Job Bwire*, a shop owner in Huruma, Nairobi, borrowed Sh5,000 from a popular digital lending app in December 2017 to buy stock after debts and family needs ate into his capital.

He was to repay the loan at 15 per cent interest in 30 days. His business took a beating from the economic slowdown associated with the protracted 2017 presidential elections.

He failed to pay within 30 days and the lender rolled over the loan, which had grown to Sh5,750, for another month at the same interest rate. He was to pay Sh2,362 as interest on the new loan, slightly more than three times the initial interest.

It was getting tougher for Job. The lender kept sending reminders laced with threats of being reported to Credit Reference Bureau for listing. He could not take it anymore.




He regrets that the lender did not disclose details about rolling over the debt in case of a default.

Job’s experience tells a story of a growing trend where both formal and informal lenders in Kenya are riding on the digital lending wave to exploit borrowers by charging them interests, sometimes of up to 200 per cent.

In September 2016, President Uhuru Kenyatta signed into law Section 33B of the Banking Amendment Bill, 2016, which capped interest rates at four per cent above the Central Bank Rate.

Parliament wanted to protect borrowers from banks which took advantage of the free-floating interest regime to exploit borrowers, charging them up to 30 per cent per annum.

This saw banks limit lending to risky segments especially households and SMEs, opting to invest in more secure government securities.


Financial statements for the year ended December 31, 2017, show that the top eight Kenyan banks invested Sh83.9 billion or 15 per cent more in government debt for a total of Sh625.1 billion in the period under review.

Lending to the private sector grew a paltry 2.1 per cent in the same period, having been the biggest loser in the credit market following the coming into force of the law capping interest rates.


Desperate households and SMEs were forced to turn to informal sources of credit, including saccos, shylocks and digital lenders which charge exorbitant interest rates.

A survey by the Star on interest rates charged by two popular digital lending apps shows that Tala charges fixed interest of 11 per cent for 21 days and 15 per or 30 days. The app was launched in the country as Mkopo Rahisi in 2014. 

Banking pundits equate the monthly interest of 15 per cent to an Annual Pricing Rate (APR) of 180 per cent per year. Tala regional manager for East Africa Rose Muturi disputes this assumption.

In an Interview with the Star a few months ago, Muturi said those converting monthly rates to get high annual figures are doing so out of malice, adding that the lender has a maximum loan maturity of 30 days.

Branch International has a flexible weekly payment plan under which customers who borrow Sh500 pay a total of Sh76 as interest in four weeks. This is an equivalent of 15.2 per cent per month.

To date, Tala has disbursed over 5.6 million loans worth Sh30 billion to over one million customers since its launch in March 2014 as M-Kopo Rahisi.

By mid-2017 Branch had disbursed 1.5 million loans worth Sh3.63 billion to 350,000 customers since its launch in April 2015.

Central Bank of Kenya (CBK) governor Patrick Njoroge says digital lenders are worse than village shylocks.

"At least shylocks hide. These platforms shout about themselves openly while impoverishing Kenyans," Njoroge told the Parliamentary Committee on Communications, Information and Innovation in August last year.

A report on digital lending released by Financial Services Deepening Kenya (FDS) in August last year shows that there are 49 digital credit providers in the country, with a new one launching every year.

Although the governor was talking about informal digital lenders, formal banks have taken the cue from such platforms, coming up with innovative digital and mobile lending tools that charge interest of between four and 7.5 per cent per month.

These rates translate to an APR of between 48 and 90 per cent per annum, way above the recommended cap of four per cent above CBK’s base lending rate that currently stands at nine per cent.

Almost all banks have turned to short term credit products charging monthly rates to conceal their exploitative tendencies.

Commercial Bank of Africa (CBA) is perhaps the pacesetter in digital lending, having partnered with Safaricom to launch M-Swari, a mobile lending and saving platform in 2012.

This product charges borrowers an interest of 7.5 per cent per month. It has seen CBA become the leading bank in terms of customer subscription in Kenya, riding on over 30 million people on the Safaricom network.

The competition for a share of the lucrative mobile money saw Equity Bank partner with Airtel to launch Equitel – a communication and mobile money platform in 2015.

Equitel is now charging a monthly interest rate of 0.65 per cent plus a processing fee of five per cent, hence the total interest of close to six per cent or an APR of almost 72 per cent. 

Even though government securities accounted for 54 per cent of the bank’s loan book last year, chief executive James Mwangi said there was a need to rethink strategy to customer lending, with yields on the treasuries also coming down in the past year.

Last week, Equity Bank reported that its 2019 Q1 net profit grew five per cent to Sh6.2 billion from Sh5.9 billion in the corresponding quarter last year largely on improved loan book, with 93 per cent of loans transacted digitally.

Last month, Equity Bank and Safaricom unveiled a plan for a new joint mobile banking service that will, among others, take the M-Pesa platform beyond Kenya’s borders.

Equity Bank seems to have been rattled by Safaricom’s partnership with KCB Group and CBA bank that have birthed M-Swari, KCB M-Pesa and a mobile phone overdraft product, Fuliza that saw subscribers borrow Sh6.2 billion in one month since its launch early this year.

KCB M-Pesa charges an interest rate of 3.6 per month, which translates to an APR of 43.2 per cent, the lowest among digital and mobile lending platforms in the country.

Fuliza or Okoa M-Pesa, the overdraft product launched by CBA, KCB and Safaricom allows users to borrow as much as Sh50,000 payable within a month at 0.5 per cent per day interest, translating into 15 per cent per month.

KCB and CBA banks offer the money, which is then transacted via the expansive Safaricom network, illustrating the creative ways banks are sliding into digital money wave to run away from interest cap law.

Early this month, Safaricom reported that at least Sh45 billion has been borrowed through Fuliza in just four months. The 0.5 per cent daily rate is equivalent to an APR of 182.5 per cent.

Fuliza loans attract a facility fee of 1.083 per cent of the value of the credit and an additional administration fee of up to Sh30 charged for each day the loan remains unpaid.

Barclays Bank has Timiza that charges 6.17 per cent per month or APR of 73.9 per cent. Other digital lending platforms by banks include Pesa Pap by Family Bank and M-Coop cash by Cooperative Bank.

Besides expensive short-term facilities, banks have tweaked their pricing structures to increase transnational charges, pushing up the average cost of credit in the country to 19.1 per cent, way above the statutory rate of 13 per cent set by the Central Bank of Kenya.

Consumer bodies want the CBK to come up with policies to protect borrowers from increasing cannibalism by the lenders.

According to Consumer Downtown Association, instant loans have become the saving grace for most households who rely on it to supplement stagnated revenues.

"These loans, though highly priced are tempting to hapless borrowers. It is about time monthly interest charged are regulated. They deceive borrowers," CDA executive director Japheth Ogutu said.

Ogutu is also against risk-based interest pricing being fronted by the government and lenders.

"Lack of uniform credit rating mechanism will give lenders a loophole to charge interests as they wish," Ogutu said.

In March, the High Court declared the interest capping law unconstitutional and gave Parliament a 12-month window period to reconsider the provisions.

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