Risky Borrowing Is Making a Comeback, but Kenyan Banks Are on the Sideline

The business of making risky loans is gradually cropping back into Kenya’s banking system with borrowers aged between 30 and 40 controlling more than a third of fast-growing mobile loans are now considered ‘risky’ defaulters.

This new problem according to a new study by Creditinfo CRB Kenya Ltd is being triggered by an industry depending on lenders that are competing aggressively, and operating with less of a cushion against losses and have fewer regulations to keep them from taking on too much risk. Recently, a chorus of industry officials and policymakers — including the Central Bank of Kenya, have started to signal that they’re watching the growth of riskier lending by Fintechs and mobile lenders.

The survey shows borrowers in the age bracket accounted for 31 percent of 19.1 million mobile loans dished out between November 2018 and April 2019.

It found that borrowers aged 25 and below came second with a 21 percent share, while those aged between 26 and 30 as well as the 41 and 50 cohorts commanded a market share of 19 percent each.

“Young people will often be scored lower since their analytics will show fewer revenue streams and lower money velocity compared with their counterparts in the older demographics who will likely be earning from a salary or a business income,” Creditinfo chief executive Kamau Kunyiha said.

Only 8 percent of the loans were dished out to borrowers aged 51 to 60 while a paltry three percent of the loans went to those aged 61 and above.

The analysis indicates mobile loan apps run by commercial banks accounted for 92.8 percent of the Sh112.2 billion advanced over the six months.

The findings are based on credit reports on 4.5 million borrowers submitted by 13 lenders, one of which controlled 66 percent of the borrowers.

“Our data also shows that the banking sector dominates the mobile lending space by a staggering 93 per cent while the other seven per cent is lent out by digital mobile apps,” said Mr Kunyiha.

“Since banks are regulated, we can, therefore, deduce that most of the mobile lending in the Kenyan market is regulated.”

Additional Reporting By Daily Nation