‘Frustrated’ Digital Lenders in Kenya Have Adopted a new Approach to Stay in Business

Following initial decision to halt lending to all customers due to increasing default rates, digital lenders in Kenya have resorted to servicing only fewer customers with good credit history. This is an approach the lenders have adopted in a bid to remain in business whilst minimising risks.

“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. Most borrowers initially were borrowing with no intention to pay back,” said Chairman of the Digital Lenders Association of Kenya (DLAK), Kevin Mutiso.

Note that the decision to focus only on fewer ‘reputable’ customers followed previous failed effort by the mobile lenders to recover their loans. In April last year, the Central Bank of Kenya (CBK) blocked their effort to forward names of defaulting customers to credit reference bureaus (CRBs). At the time, Kenya’s apex bank cited the fact that the digital lenders are ‘unregulated’ and ‘predatory’ in their lending approach.

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In the meantime, members of the Digital Lenders Association of Kenya are awaiting a government regulation that will supervise their activities, before they can resume lending to every customer.

Note that in spite of the controversy surrounding their activities (such as high interest rate and privacy concerns), Kenyan digital lenders typically struggle with the serious problem of loan defaults. As a matter of fact, about 90% of loan defaults in the country are said to have been given out by digital lenders. Now, being removed from the credit reference bureaus’ mechanism further exposes them to greater risks. Hence, the decision to slow down and focus only on trust-worthy customers for now.

Business Elites Africa understands that in the absence of digital lenders willing to give out loans to borrowers, Kenyans are now shifting focus to banks which have continued to enjoy the credit reference bureaus’ mechanism after the CBK kicked out all the unregulated digital lenders from the system.