The growth in digital credit has made it so easy for Kenyans to get loans in minutes without the need to comply with the bank’s heavy algorithms to build a high financial profile.
However, this has affected many borrowers who are struggling to stay afloat.
A report by the Kenya Bankers Association has indicated that one in five digital loans borrowed by Kenyans has not been repaid since 2017.
The lender’s lobby added that 21 percent of loans borrowed through mobile phone platforms have not been repaid under the period between 2015 and 2018.
This number surpasses that of customers who take regular loans whose default rate stood at 10.2 percent over the three year period.
“Digital non-performing loans (NPL) to digital credit ratio for commercial bank averaged at 21 percent between March 2015 and March 2018, which is relatively high as compared to the banking industry average NPL ratio of 10.2 percent,” the report stated.
KBA noted that borrowers have developed the habit of tipping loans from different firms in order to settle loans and this leads them to be negatively listed on Credit Reference Bureaux (CRBs).
A different study by Microsave, a financial service consultancy said that in three years, 2.7 million people out of a population of around 45 million, have been negatively listed with CRBs.
The report by KBA mirrors another one by financial solutions firm, the Consultative Group to Assist the Poor (CGAP) which noted that one in eight digital borrowers have defaulted on a digital loan while almost half (47 percent) report paying late.
In 2017, the non-performing loan (NPL) ratio for bank digital loans averaged 11.4 percent as compared to 9.69 percent for all bank loans.
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