Pandemic hands digital lenders a chance to redeem reputation

Steve Umidha

LOANS: The ongoing coronavirus pandemic has handed mobile loan lenders a rare opportunity to not only prove their worth, but also redeem their torn reputation.

This is owing to the fact that such platforms have struggled to convince investors that they are the future of small business lending.

Public opinion

Analysts now say that the behaviour 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,” said Phillip Kisabit, the CEO of Micro-cap, 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.“We are adequately prepared for the expected surge in the number of borrowers now walking through our doors,” said 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,” said TALA’s General manager for EA Ivan Mbowa.

Mobile loans

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).

CBK Governor Patrick Njoroge last week barred 64 mobile-based lenders from using credit reference bureaus (CRBs) and subsequently withdrew the approvals granted to unregulated credit-only lenders as third party credit information providers to CRBs.

He said 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.