Why Kenyan Banks Have drastically Reduced Digital Lending to Customers

Some of Kenya’s biggest banks said they have drastically cut down on their digital lending to customers. This follows the Central Bank of Kenya’s decision to put a hold on bank’s ability to list names of loan defaulters with the country’s Credit Reference Bureaus (CRBs).

The likes of Equity Group Holdings, NCBA Group Plc, and KCB Group Ltd all said they have drastically reduced their digital loans in order to avoid higher defaults.

Business Elites Africa understands that the 6-month freeze on listing with Credit reference Bureaus had demotivated many customers from paying back their loans which they borrowed mostly for consumption purposes.

“Without the ability to list anybody on the CRB, then there was no motivation for the customers to pay. This was a very difficult measure and it contributed to us reducing the lending. Our levels of non-performing loans for this product increased from two per cent to 15 per cent in the second and third quarter of the year,” said Joshua Oigara, the Chief Executive Officer of KCB Group Ltd.

Business Daily Africa also quoted the CEO of Equity Group Holdings, James Nwangi, to have said that “we had to be very careful. We tightened the rules because fintechs were denied access to CRBs and we couldn’t tell much about the credit profile of non-bank customers.”

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Meanwhile, the Central Bank of Kenya had explained that it directed on freeze out of consideration for the customers, following the economic fallout of the COVID-19 pandemic which made it difficult for most customers to repay their loans. The freeze was one of the relief packages that was announced by the Kenyan Government in March as part of efforts to stimulate the economic following outbreak of the COVID-19 pandemic in the country.

It should be noted that the appraisal and disbursement of digital loans in Kenya are less stringent and often carried out through e-platforms. This is very much unlike what obtains when it has to do with conventional borrowing.