Digital Credit Both a Blessing and Curse for Kenyans: Millions Blacklisted

Digital credit in Kenya has been termed as the biggest contributor to the increasing number of individual defaulters reported to the credit bureau.

Over 2.7 million Kenyans have been reported to a credit bureau with a negative listing for late repayment or default. According to a report by FSD Kenya, digital loans have transformed the market for credit in Kenya in the past five years.

Mobile phones, identity-linked digital footprints, automated credit scoring, agent networks, and credit information sharing have enabled providers to deliver loans quickly and at scale.

Bank supervision data from the CBK has indicated that the number of deposit and loan accounts in the overall commercial banking system increased from 11.9 and 1.67 million in 2010 to 34.6 and 8.51 million in 2016 as a result of the transformation in the Kenyan credit market through digital loans.

The sheer growth of the digital credit market is confirmed by how immense M-Shwari, Kenya’s first digital banking product offered by the Commercial Bank of Africa (CBA), supplied over 20 million loans to 2.6 million borrowers in its first two years.

To put that into perspective, CBA only had 13,000 open loan accounts the year before M-Shwari was launched, between 2013 and 2015, CBA opened over twice as many loan accounts, 27,400 on average – per day, effectively transforming CBA from a niche bank serving corporate clients to a bank serving the mass market.

CBK similarly indicated that the Kenya Commercial Bank (KCB) historically processed around 200,000 new loans per year, in 2015, the year it launched KCB M-PESA the number of new loans it disbursed increased 20-fold to around 4 million.

Between December of 2011 and December of 2016, the value of non-performing loans as a share of total gross loans more than doubled across all commercial banks, rising from 4.35 to 9.34 percent, reaching levels not seen since the end of 2007, all this as a result of digital credit.

For millions of adults, the possibility of borrowing from their phones has opened the door to private, formal consumer credit for the first time. Yet the pricing, marketing and potential misuse of these products coupled with the extensive negative reporting of borrowers who have failed to repay these relatively small loans have raised a growing chorus of concern about their design and the adverse impacts they have on borrowers and the financial system more broadly.