Mobile loan game – the new Shylocks

By Antony Mutunga
In Shakespeare’s book, The Merchant of Venice, there was a Venetian Jewish moneylender, the main antagonist, who used to charge people exorbitant interest on loans. He went by the name of Shylock. This saw the rise of the term ‘shylock’ which refers to loan sharks or moneylenders who usually lend at a pretty high interest rate.

Shylocks popularity was brought about by the increase in people’s expenditure and the long and difficult procedures one had to go through in order to obtain credit from financial institutions. In Kenya the shylock had found a place to call home as a majority of Kenyans, having been ignored by elitist banks, depended on them. Recently, their home walls have started crumbling down as mobile credit applications have won the hearts of many, taking away their customers.

Brings about the question, are mobile credit providers not to some extent acting as shylocks themselves? Did the people exchange one shylock for another? Or are they really genuine to their cause?

The mobile credit facilities have really grown in the last three years. Since M-Shwari was launched in 2012 there have been multiple others forming up, for example, Mkopo Rahisi, Saida, Branch, MCo-op cash and KCB M-Pesa. There are many more but these are the ones that recently hit the mark as they are where most Kenyans go when in need of money for an emergency or occasion. They are especially popular with people as most of them give out loans without asking for securities like most credit financial institutions demand.

They usually have high interest rates ranging between 5% to 10% per month, which is to be paid within 30 days with the exception of KCB M-Pesa where one can pay between one and six months. Some of these mobile loan applications are genuine but others tend to be real shylocks going by their interest rates.

M-Shwari, which was formed by Safaricom in partnership with commercial bank of Africa (CBA), is a platform that acts as a bank by pinning access to credit on the customer’s saving rate, transaction frequency and loan repayment reliability. The only way to access it is through the Safaricom toolkit and one can deposit or withdraw from M-Shwari via the M-Pesa wallet.

The question on everyone’s mind is how can these mobile credit facilities afford to give out such loans without securities?

The types of loans that the mobile credit facilities are giving can be identified as unsecured loans where the lender only values the borrower in terms of his creditworthiness. They are high-risk loans, justifying their relatively high interest rate.

The facilities are able to give them out because institutions such as Credit Reference Bureaus (CRB) can now enforce strict laws on those that do not repay. The mobile loan providers are also profiting from this due to people’s fear of being completely cut out of borrowing in financial institutions henceforth. Consequently, those who borrow own up regardless of the percentage.

Now, each of the mobile loan providers has its own interest rates as well as conditions on what happens if one does not pay at the agreed time. With some of them having very strict rules and others being lenient in order to not lose customers.

The first mobile loan provider was Safaricom in partnership with commercial bank of Africa (CBA). The requirements for eligibility for a loan in M-Shwari is one must have a phone number which is active and registered with M-Pesa and must be over 18 years. The maximum loan amount a person can acquire is Sh20, 000 and the minimum is Sh100 and the loan is repayable within 30 days via M-Pesa or Mshwari, whose interest rate stand at 7.5%.

If one is unable to repay the loan they are usually given an extension loan period of additional 30 days but with an additional 7.5% facilitation fee on the outstanding loan balance. If one still does not adhere to the conditions then their M-Shwari savings are frozen and they get reported to the CRB.

Mkopo Rahisi was founded by Inventure Mobile Kenya Ltd as a credit facility. Head of growth at Inventure, Ami Gossalio says the application only takes about 5 to 10 minutes to give out a loan to an approved person adding that, “We use data to underwrite and choose people liable for credit, for example, one’s social network, financial transactions or recent purchases.”
The android application gives a loan between Sh4, 000 and Sh10, 000 and has so far been able to disburse more than 100,000 loans to approved people in Kenya. They usually have an interest rate of 5% to 15%, which is to be paid back in 3 equal weekly installments via M-Pesa to Paybill number 851900. If one borrows a loan from Mkopo Rahisi and is unable to repay, then the company restricts the person from qualifying for future loans.

Branch is an international credit facility, which came to the Kenyan market in 2015 and is joining the likes of Mshwari and Mkopo Rahisi. It has operated for less than 7 months although it has aims to be the number one mobile lending solution in Kenya according to Head of Branch Kenya, Andrew Huelsenbeck.

The minimum amount that one can be loaned is Sh1, 000 and maximum is Sh50, 000. It has to be repaid in duration of 3 equal weekly installments. The interest on the loaned amount is dependent on how one repays the weekly installment, if done by due date the credit score increases which decreases the interest rate.

The loan must be paid in the required time, if it is not, the user’s branch credit score reduces leading to an inability to ever get larger loan amount and if it gets serious, one may be reported to the Credit Reference Bureaus (CRB).

In KCB M-Pesa, one is able to apply for a loan by dialing *844# on their mobile phones and instantly they can get one between Sh100 and Sh1 million. The loan can be taken at the M-Pesa account or at any KCB branch.

You can choose flexible repayment periods of 1 month, 3 months and 6 months via M-Pesa, KCB M-Pesa account and Mobi/Branch/Mtaani with an option of partial payments. The interest on the loan includes: 30 day loan at 6% per month, 90 day loan at 5% per month and 180 day loan at 4% per month. To attain a loan the credit facility looks at ones M-Pesa account records, the more one has used their M-Pesa account the larger amount they can borrow.

In the event that one is not able to repay their loan then roll over of any outstanding amount in respect of the loan for a further period of 30 days is effected. If one is still unable to pay the loan then the person has to pay the outstanding amount together with an additional roll over fee, which is to be agreed upon when they first give you the roll over. If still one fails to pay the transaction fee then the bank has the right to close your KCB M-Pesa account and utilize any other account one may have to pay the outstanding amount at the same time disclosing your information to the CRB.

Saida, another incoming mobile loan application, approves loans based on how you use your phone; if one uses mobile money Services such as M-Pesa, Airtel Money at least once every two days, makes and receives calls, sms and data services on a daily basis, have an income that is enough to pay back your loan and your living expenses, and if one has the financial discipline of saving, investing and paying your obligations on time.

To acquire a loan from Saida, just like Mkopo Rahisi and Branch, one has to download the Saida android application from Google play store and fill in their mobile number to request for an invitation which could take up to 3-7 days for approval.

If you are approved, you can request a loan and Saida will send your loan to your M-Pesa or Airtel money. You can pay back in installments or lump sum within the time given. If you are not approved for a loan they will explain why and tell you when you can re-apply or what you can do to get approved. The loan amount that one can borrow from Saida lies between Sh600 and Sh100, 000. The loans have an interest rate of 10% whereby the repayment duration is 30 days and is to be paid via M-Pesa or Airtel money. If one is unable to repay the loan before the specified duration then they are reported to the CRB.

Another one of this mobile loan application is Co-operative Bank’s MCo-op cash where one is able to borrow a loan of up to Sh200, 000 with the minimum being Sh100. This loan can be acquired through visiting one of the bank’s branches, visiting a co-operative agent location or by using ones mobile phone by dialing *667#. If one is approved by the bank to get the loan it is then disbursed to ones phone.

The interest rate for the loans ranges between 7% and 10% depending on the loan type one has acquired and the repayment duration is usually one month. There is also an exception for the borrower to pay the loan before the expiry of the term. “Late payment attracts a fee of six per cent per annum and eventual customer listing on credit reference bureau in case they do not repay,” says Co-operative Bank director for retail banking, Mr Matumo.

More mobile credit facilities will keep coming up to fight for a portion of the virgin market. The obvious conclusion is that these mobile loans can be given the name ‘new shylocks’.