Digital lenders to cut instant loans on CRBs directive

Digital lenders to cut instant loans on CRBs directive. FILE PHOTO | NMG 

By CONSTANT MUNDA
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Summary

• Micro-sized enterprises and individuals who rely on unregulated digital lenders for instant loans will suffer delays in receiving credit after the mobile financiers were stopped from forwarding defaulters names to the credit reference bureaus (CRB), the industry lobby warns.
• Digital Lenders Association of Kenya (DLAK) said some of the mobile lenders would be forced to ask clients to send them bank and M-Pesa statements to validate information on their source and level of income, lengthening the loan application period.

Digital lenders will cut instant loans after Central Bank of Kenya (CBK) order on blacklisting of defaulters reduces credit worthiness reports, the industry lobby warns.

Digital Lenders Association of Kenya (DLAK) said some of the mobile lenders would be forced to ask clients to send them bank and M-Pesa statements to validate information on their source and level of income, lengthening the loan application period.

They reckon that the order stopping unregulated digital lenders from blacklisting defaulters will cut the numbers of people on CRBs radar, making it difficult for the firm to establish the creditworthiness of borrowers within hours.

“It is very likely the speed of service delivery will slow down because of that restriction because we had managed to get to a point where already that information was integrated and automated. It’s quite a step back in terms of processing,” said DLAK chairman Robert Masinde on phone.

The digital micro-lenders were the main driver of a surge in credit status reports requested from the CRBs to 12.40 million in 2018 from 4.38 million the year before, the Central Bank of Kenya (CBK) data show.

The CBK says disconnecting unregulated digital mobile lenders from CRBs is linked to the public outcry over widespread misuse of the credit information sharing (CIS) mechanism.

This means only banks like KCB, Cooperative Bank and NCBA Group as well as micro financiers and deposit-taking saccos will be allowed to blacklist defaulters with one of Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International.

The fintech firms are locked out at a time when the bulk of accounts negatively listed are linked to mobile digital borrowers.

But with the platforms, which include Branch and Tala, now locked out, the database of credit history information will thin, forcing some of them to rely on other sources which require more time to verify.

“It will cause some disruptions because it is going to be difficult to be as efficient and as real-time as it has been for many of the digital lenders. That’s the cost we have to bear with when this restriction is in place,” said Mr Masinde, also the chief executive of Zenka Finance Kenya.

DLAK, which represents 18 firms out of estimated 50 in the fast-growing industry, acknowledged a “few of the players” have been unprofessional.