Pandemic hands mobile lenders a chance to redeem reputation

By Steve Umidha @UmidhaSteve

The ongoing Coronavirus pandemic has handed mobile loan lenders a rare opportunity to not only prove their worth, but also redeem their torn reputation owing to the fact that such platforms have struggled to convince investors that they are the future of small business lending.

Analysts now say that the behavior of digital lenders will be a litmus test of public opinion during this time as more poor Kenyans continue to knock on their doors for financial assistance.

With conventional banks reluctant to put money in the hands of small businesses due to non-payments by small scale borrowers, one executive of a non-bank facility, already feels this will limit mobile lenders’ ability to withstand the mounting loan demands.

“With slow payments, liquidity has been affected and profitability has certainly shrank for us,” says the Ceo of Micro-cap Holdings, a local micro enterprise service, adding that the move will also affect banks who he says may resort to unsecured lending practices or stick with previous borrowers.

But another executive with an online lending institution disagrees, maintaining that “we are adequately prepared for the expected surge in the number of borrowers now walking through our doors,” says Peter Macharia, the Ceo of Jijenge Credit.

“I believe there is the ability to service the demand however with the difficult times this may lead to stricter restrictions on the loans as entities try and ensure that their customers maintaining good standing and are not overburdened with loans,” commented TALA’s general manager for EA Ivan Mbowa.

Also likely to be put to test is the mobile loans’ ability to continue lending to businesses that are either struggling or have shut down due to the pandemic with also critical tool of measuring a potential borrowers’ creditworthiness also taken away from them by the Central Bank of Kenya (CBK).

The CBK Governor Dr. Patrick Njoroge last week barred a whopping 64 mobile-based lenders from using the Credit Reference Bureaus (CRBs) and subsequently withdrew the approvals granted to unregulated credit-only lenders as third party credit information providers to CRBs.

“This is in response to numerous public complaints over misuse of the credit Information System by the unregulated digital and credit-only lenders, and particularly their poor responsiveness to customer complaints. Thus, unregulated digital and credit-only lenders will no longer submit credit information on their borrowers to CRBs,” the regulator said in a statement.

Those changes, some players believe will be a double-edge sword.

“There is also the potential with this decision that hundreds of thousands of Kenyan entrepreneurs and consumers who are under banked may be cut off from being able to receive credit from the only source of credit that was available to them that is digital, mobile lenders,” said Mr. Mbowa in an interview.

It now remains to be seen if digital Apps will withstand new changes and directives by the regulators and how they aim to adopt to them in the long term, with the ultimate goal being the safety of the defenseless mwananchi.