Digital Lenders Cut Loans to Shield Themselves from Defaulters following CRB Directive

Digital Lenders Association Directors signing the Code of Conduct (L-R) Ivan Mbowa East Africa Regional Country Growth Manager Tala), Allan Mukui (DLAK Secretary and CEO Kuwazo), Robert Masinde (DLAK Chairperson and CEO Zenka), Rose Muturi (DLAK Vice Chairperson and Chief Digital Officer HF Group), Kevin Mutiso (DLAK Director and CEO Alternative Circle). The Code will guide the conduct of the industry through a set of shared principles.

Borrowers will now have access to just about half the value of loans they did, after digital lenders cut their loans to shield themselves from defaulters.

The Chairman of the Digital Lenders Association of Kenya, Kevin Mutiso said that lending had been cut to about Sh1 billion to Sh2 billion from about Sh2 billion to Sh4 billion for an average of four to six million people since the announcement from CBK.

“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.

Read: How Zash Loans Harasses Borrowers with Insults and Intimidations on their Platform

The move follows an announcement by the Central Bank of Kenya (CBK)prohibiting the lenders from listing defaulters with credit reference bureaus (CRB)

Speaking at the launch of survey findings gauging the use of microloans, Mutiso said they now rely on customers with a good repayment history to gauge their trustworthiness.

“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.”

Read: 337 Digital Mobile Lenders Barred From Listing Borrowers With CRBs

he said that 55.5 percent of people interviewed said they take loans to boost their working capital while 24.8 percent use it for emergencies, while 13 percent use it to pay school fees.

According to DLAK, customers’ motivation to repay loans went down after CBK announced that they would no longer be listed with the CRB in April last year. Mutiso says it then became difficult to identify good and bad borrowers, hence the resolution to cut down loan amounts.

President Uhuru Kenyatta announced that the move was meant to cushion Kenyans from the economic difficulties brought about by the Covid-19 pandemic.

Mutiso said the latest announcement by CBK to block CRB listing for defaulters of loans below Sh5 million will have a negative effect on the banking sector.

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Written by Vanessa Murrey

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