Central Organization of Trade Union (COTU) says it has received countless petitions from Kenyans, most of them being members of COTU, on the exploitation being meted against them by digital microfinance institutions.
COTU secretary general Francis Atwoli is now calling on Parliament and Central Bank of Kenya (CBK) to tame the digital lenders which charge draconian interests on its loans.
“In the name of financial inclusion, the digital microfinance institutions, and by extension mobile lenders, have continued impoverishing Kenyans by imposing draconian interests on their credit facilities,” says Atwoli.
Atwoli says this is daylight robbery practised by institutions that in their DNA are supposed to be helping poor Kenyans and small businesses grow.
“On the flip side, these digital microfinance institutions have not only made the average Kenyan poorer but also killed businesses by making it harder for them to access further credit and eating into their profits,” says Atwoli.
He said with most banks having their interest rates between 12% to 14% per annum, most of the digital lending facilities have interest rates of between 70% to 500% per annum.
The COTU secretary general says some digital microfinance institutions like Fuliza by Safaricom, which has pushed Kenyans into owning more than one sim card from the same mobile operator has an interest of 1% per day and more than 360% per annum.
“Other mobile lenders have an interest rate of 25% after every two weeks while others 33% for every week. This is ridiculous and unacceptable and no amount of risk factor can substantiate this kind of banditry,” says Atwoli.
COTU called upon CBK to move with speed and save Kenyans from digital microfinance institutions that are exploiting Kenyans left, right and centre.
“We would like to remind the CBK Governor, who is a practicing Christian that if anything the conduct of the digital microfinance institutions in Kenya is not only illegal but also ungodly,” he said.
The COTU secretary general also called on Parliament to come up with sound legislation to facilitate the crackdown on the rogue digital microfinance sector in Kenya.
Teachers employed by Teachers Service Commission (TSC) have for a long time complained of exploitation by microfinance institutions which promise loans in less than 24 hours.
Some teachers also reported of loans which they did not take but were factored in their payslips. This is what prompted TSC to come up with T-PAY to protect its teachers from exploitation.
In the T-PAY portal teachers must approve any loan before its placed in the Check-off system. However TSC also blamed teachers for sharing out their T-PAY passwords to people working with such institutions.
Some microfinances like Platinum Credit, Premier Credit, Select Credit, Get Back, and Izwe have been mentioned many times for charging exorbitantly for their loans and listing them on Credit Reference Bureau (CRB).
However its a relief after the Central Bank suspended CRB listing of loans under Sh5 million starting this month.
Borrowers defaulting on loans of less than Sh5 million will not be blacklisted at the credit reference bureaus while those already blacklisted will be dropped in a bid to cushion businesses recovering from Covid-19 hardships.
This is after the Central Bank of Kenya moved to implement President Uhuru Kenyatta’s order on suspending the listings.
President Kenyatta announced last month the suspension of CRB listing for loans that were defaulted from last October with the relief from blacklisting set to last to September next year with a view of cushioning borrowers hit hard by Covid 19 economic shocks.
“The CBK announces the suspension for a period of twelve months, of the listing of negative credit information for borrowers with loans below Sh5 million, whose loans were performing previously, but have become non-performing from October 1, 2021,” the regulator announced on Monday 8th November 2021.
“Consequently, loans below Sh5 million that fall in arrears from October 1, 2021, to September 30, 2022, will not lead to the “blacklisting” of the borrower on the Credit Reference Bureaus (CRBs).”
The CBK said CRBs will not include in any credit report, any negative credit information for loans of a customer less than Sh5 million submitted to the CRB from October 1, 2020, to September 30, 2021, for a period of 12 months from October 1, 2021, to September 30, 2022.
The CRB listing relief is part of a stimulus package to cushion distressed businesses and families from the effects of the Covid-19 pandemic, which have hit consumer demand and forced businesses to shed jobs and cut back their operations.
Borrowers reported to one of Kenya’s three credit bureaux jeopardise their chances of being able to borrow more.
“The relevant authorities will, for loans less than Sh5 million, effect a moratorium of listing in CRBs for a period of 12 months to end September 2022,” President Kenyatta had said.
Mr Kenyatta’s order was seen to slam the brake on banks, SACCOs and microfinance firms which have since June been allowed to resume free provision of negative credit information to the three CRBs.
Financiers have warned it may result in a slow down of private sector credit as banks become more risk-averse.
The suspension is the second since Kenya reported the first case of the Covid-19 disease last year as the State moves to protect households and businesses from being locked out of credit.
CBK had given a six-month suspension of CRB listings in April last year as part of the measures to cushion borrowers hit by the pandemic.
The moratorium lapsed in October, allowing financial institutions to start sending names of defaulters to the bureaus. Lenders, however, offered defaulters 90 days from October 1 to start repaying their loans or get listed with CRBs.
The suspension of negative listing on Kenya’s three CRBs — Metropol, TransUnion and Creditinfo International — was meant to cushion distressed borrowers from the effects of the coronavirus pandemic.
Workers who had tapped unsecured loans on the strength of their salaries to purchase goods such as furniture and cars and for expenses like school fees have struggled to keep up with repayments in the wake of retrenchments and pay cuts.
The number of loan accounts negatively listed with CRBs hit 14 million in January this year, underscoring the struggles Kenyans are having with repayments.
Blacklisted accounts jumped 45 percent in the five months between August and January after the CBK lifted a three-month listing moratorium.
Data from CRBs showed that the number of loans accounts in arrears for more than 90 days had jumped to 14,035,718 by January this year, up from 9,673,258 in August 2020.
The ratio of non-performing loans to total loans in the banking sector stood at 14 percent in June, down from 14.6 percent at the end of March, highlighting the economic recovery for households and businesses.