In Summary
  • Young people could be borrowing for fun or short-term gain oblivious of the repercussions of being declared bad borrowers for defaulting on as little as Sh50 spent of airtime.
  • According to Central Bank of Kenya data, as at March 2017, the volume of new mobile loans approved monthly by commercial banks had increased by 53 percent, while the value of new mobile loans approved monthly increased by 81 percent.
  • The regulator says that non-performing loans (NPL) ratio for digital loans extended by banks is consistently higher than that for the entire bank loan portfolio, pointing to high risk of default and eventually blacklisting.

Many young and tech-savvy people are at an increased risk of ruining their credit scores and reducing future access to loans by falling for easy-come digital loans.

A study by the non-governmental Consultative Group to Assist the Poor (CGAP) says young people could be doing it for fun or short-term gain oblivious of the repercussions of being declared bad borrowers for defaulting on as little as Sh50 spent of airtime.

“The transaction data show that first-time borrowers are much more likely to default, which may reflect lax credit screening procedures. This can have potentially long-lasting negative repercussions when these borrowers are reported to the credit bureau,” it says.

'WORST DEFAULTERS'

It says lenders should be wary of borrowers applying for credit at between 1am to 2am terming them the worst defaulters.

“This is a worrisome side of digital credit that, at best, may help borrowers to smooth consumption but at a high cost and, at worst, may tempt borrowers with easy-to-access credit that they struggle to repay,” the report says.

About a quarter (25 per cent) of the digital borrowers who sought small loans were aged between 18 and 24 years and ended up defaulting, indicating that they were likely jobless and were seeking ‘cheap’ money to meet an immediate need without knowing where they will get money.

Page 1 of 2