The ratio of overdue loans in Kenya’s digital-lending industry increased to 23% in April from 18% in March, while turnover fell by about a third as the impact of the coronavirus pandemic began hitting the East African nation.
Non-bank mobile-phone lenders had the most souring loans, resulting in some of them going out of business or significantly reducing credit supply, according to Eric Muriuki Njagi, digital business director at NCBA Group Plc, the biggest provider of such credit.
Non-bank digital lenders hold a 10th of the industry and banks control the rest, according to Joshua Oigara, chief executive officer at KCB Group Ltd., the second-biggest provider of mobile loans.
“We have taken a long-term view and will continue to be present for our customers,” Njagi said. “Since launch, we have continued to outperform the industry, whether by bank lenders or non-bank lenders, with regard to the quality of our portfolio.”
Signs of Strain
While NCBA’s ratio of non-performing digital loans was steady at about 3% in the last three months of 2019 and the first quarter of this year, signs of strain have been showing since the start of the second quarter, Njagi said.
In the first quarter, the lender disbursed 100 billion shillings ($935.4 million), 43% more than a year earlier, after it introduced an overdraft service in partnership with Safaricom Plc known as Fuliza, Njagi said.
The product has proved popular, with customers more than tripling in the first three months to 19 million, raising digital-banking users to 53 million in Kenya only. About 60% of Fuliza customers were already on M-Shwari, NCBA’s savings and credit service, he said.
M-Shwari has an average daily turnover of about 300 million shillings. The amount includes transactions on Fuliza, which while having a lower profile, sees higher velocity.
KCB Group on its part targets increasing digital loans to account for about 5% of its book by the end of the year from about 3%, CEO Oigara said. Customers doubled in the first quarter from a year ago to about 10 million, and about a third of them have outstanding loans at any time.
While total loans in the first quarter rose by 30% from a year earlier, the monthly amounts dropped by a third in March from an average of 10 billion shillings in January and February, he said. The ratio of bad debt ranged between 3.5% and 4%.
“In the second and third quarter we are likely to see subdued demand, because customers may have lost their source of repayment because of the crisis,” Oigara said.
©2020 Bloomberg L.P.