CBA blacklists 140,000 Safaricom loans defaulters

A man makes a phone call next to an M-Shwari branded bus stand in Nairobi. More than 140,000 users of M-Shwari have been blacklisted. FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia

In Summary

• Names of M-Shwari users who have not repaid loans have been forwarded to credit reference bureaus.
• CBA has been forwarding the names of those who fail to repay their debt for more than three months.

More than 140,000 users of the mobile phone based bank account M-Shwari have been blacklisted for defaulting on loans.

Commercial Bank of Africa (CBA) forwarded names of the defaulters to credit reference bureaus, potentially locking them out from accessing the loans market for at least five years or consigning them to high borrowing charges.

CBA, which jointly developed the mobile phone bank account service with Safaricom, has been forwarding the names of those who fail to repay their debt for more than three months.

“CBA confirmed (it) intends to report the M-Shwari portfolio to the credit reference bureaus,” read a report authored by a consultant from Oxford University on behalf of Financial Sector Deepening (FSD) Kenya, an organisation involved in expanding access to financial services.

An M-Swari loan is payable within 30 days at an interest rate of 7.5 per cent. CBA is estimated to disburse 24,000 M-Shwari loans everyday valued at about Sh7.3 million.

READ: M-Shwari drives increase in bank accounts to 18m

The bank did not respond to our queries on the value of loan defaults or total number of active M-Shwari accounts by the time of going to press.

Increased uptake of the mobile phone product has seen CBA rise to be the second largest retail bank on the basis of deposit accounts. In October, the bank reported of having crossed the five million accounts mark.

Though it is mainly associated with small loans, good borrowers with the bank are able to graduate and access larger loan facilities. The CEO had told the Business Daily in a previous interview that some were now borrowing up to Sh8,000 backed by their credit history.

CBA bears the credit risk associated with M-Shwari which was launched 14 months ago as the loans are carried in its books.

Twenty five thousand of those blacklisted have cleared their outstanding amounts, but the blemish will remain with them for the next five years as per the credit reference guidelines.

All banks have incorporated checks with the bureaus as part of appraising a customer before giving them a loan. Any listed customer is required to first clear the outstanding amount before being considered for a loan, of which most are denied.

Many may have thought they could dodge the M-Shwari system given its ease of application. The customers need not have a prior interaction with CBA as their qualification is pegged on the usage of their Safaricom’s M-Pesa account.

CBA has in the past defended the pricing of the loan at a flat 7.5 per cent on the basis that there was no comparative product in the market and they did not know the credit risk to peg on the customers.

Blacklisting of defaulters is therefore expected to lead to reduction of pricing as the credit risk is lowered. FSD, however, cautions that the voluminous listing expected to follow the growth of M-Shwari could burden the bank and the credit bureaus.