KCB has relaunched KCB M-Pesa loans, small value short-term loan product, with zero interest option along with allowing customers to top-up to their current outstanding loans and roll over loans past the one month.
KCB M-Pesa was launched back in March 2015 in partnership with Safaricom, and they are available from the Safaricom SIM toolkit. The re-launch came after the migration of the service on to a new platform in partnership with Huawei that will process transactions faster and which is more stable.
KCB CEO Joshua Oigara said that the bank was disbursing Kshs 7 billion worth of loans through mobile, an amount that used to be disbursed over six months at their traditional branches. He announced that the platform improved would bring three new changes to the loan product namely; automatic roll forward of loans if a customer was not able to repay in thirty days, customers could not top-up loan until they reach their credit limits(previously they had to repay an existing loan, in order to qualify for a new ones) and customers will pay zero percent (0%) loan interest if they repay loans on the same day. The zero interest loan offer runs from December 18, 2018, to 17 January 2019 and during this period, customers will be able to enjoy one interest-free loan per week as long as the loan is repaid by midnight of the same day.
The Central Bank of Kenya (CBK) and the Kenya Despisit Insurance Corporation announced the conclusion of the Imperial Bank receivership that will probably not satisfy customers who still had vast sums deposited at the bank that was suddenly closed in 2015.
KDIC and CBK announced they had accepted a modified biding offer from KCB, Kenya’s largest bank for Imperial Bank (in receivership) that comes with a payment of 12.7% of the balances that were owed to the remaining depositors.
Closure in sight for depositors of Imperial Bank with CBK's acceptance of binding offer from KCB. Payment of 12.7% of eligible balances to depositors. Unfortunately, balance of deposits will be lost. https://t.co/jlVRctqfBW
Since making a first payment in three years ago through KCB and Diamond Trust, of up to Kshs one million that took care of most of teh small depositors, further payments have been availed to larger depositors. But with the acceptance of the offer today, they will have only accessed 35% of the deposits held in the bank when it was placed under receivership, with the balance of the funds now uncertain.
A loan verification process will be done through teh first quarter of 2019 after which depositors may be able to receive more of their funds
The collapse of the bank started in the days after the the sudden death of its Managing Director, after which revelations of fraudulent accounts he managed, secret off-the-book loans, fishy undocumented cash transfers came to light.
The Central Bank of Kenya (CBK) has levied bank fines against five institutions over transactions relating to their handling of payments and movement of funds sent from the scandal-plagued National Youth Service (NYS).
The banks are Diamond Trust which handled Kshs 162 million, and was fined Kshs 56 million, Co-operative Bank which handled 263 million (and was fined 20 million), KCB which handled Kshs 639 million (fined 149.5 million), Equity moves Kshs 886 million (89.5 million fine) and Standard Chartered which handled Kshs 1.63 billion from the NYS, and which was fined Kshs 77.5 million.
The CBK statement read that the bank fines followed investigations into failures at the banks including; not reporting large cash transactions, not doing due diligence on customers, lack of support documents for large transactions and lapses in reporting suspicious financial transactions to the Financial Reporting Centre (FRC).
Notably missing was Family Bank that featured heavily in a prominent series of transactions of funds that originated from procurements at the NYS. It has been previously sanctioned and branch and senior staff are being prosecuted.
All the banks which handled NYS funds had been named earlier and the CBK statement added that this was not the end, with an additional group of banks set to be identified and investigated.
The simultaneous release on Thursday morning of half-year results of Kenya’s three largest banks portrays a picture of the banks resuming their super profits streak even as the government looks set to repeal interest rate caps later this year.
But the results are deceptive in that the banks have all shown flat growth in loans, despite the growth in customers deposits which have increasingly been channelled towards funding government debt, at the expense of the private sector.
The results showed:
Flat growth in loans: e.g while KCB deposits are up by Kshs 40 billion this year, net loans are actually lower than December 2017.
Decline in assets and capital – as the banks noted that the adjusted capital ratios were due to CBK guidance on IFRS9.
Growth in the diaspora and the East Africa region.
James Mwangi CEO of Equity spoke of the bank’s total income now being ahead of where they were in June 2016 before the interest rate caps were set by Parliament, and that the June 2018 results were achieved despite losing 40% of loan interest income in Kenya. Interest rate caps which were reintroduced in Kenya in 2016 were pushed at a time when large banks were recording “super profits” and which parliamentarians attributed to them charging high-interest rates to borrowers.
Rate caps have enabled government to finance deficit without political cost of rising interest rates. (Un)intended consequence?https://t.co/VOy4Aa9wv6 via @BD_Africa
Another factor has been cost efficiency improvements through digitization and a move away from fixed investments in brick and mortar. Equity also reported that 97% of customer transactions were done outside branches and these accounted for 55% of the value of transactions, and their CEO said that in future, branches will be for high-value transactions, advisory services, and cross-selling products.
With the result of the three, along with that of Barclays and Stanbic earlier this month, we have results of five of the seven largest banks in Kenya and none from the smaller banks. Last year,, the top -ten banks took over 90% of the industry profits. What does IFRS9 portend for the smaller banks?
It elicited a lot of comments on the cost of finance offers to Kenyans, since an interest capping law passed in 2016 that restrict banks to lend at a maximum of 14%, the lack of regulation of app loans who may be taking advance of Kenyans by charging usurious rates etc. It also led to a mention of a research report from Micro Save about the digital credit landscape in Kenya that was shared by one of the authors.
The Microsave Report (PDF) titled “Where Credit Is Due: Customer Experience of Digital Credit In Kenya” had lots of insights. It was drawn from feedback from 1,009 farmers located in 50 villages, equally split between Central Kenya and Western Kenya, and also with an equal number of men and women in the study.
At the end of it, the report makes some recommendations to the Communications Authority of Kenya and the Central Bank of Kenya – such as to control the type of messaging sent by text to consumers, and to require app loan companies to share information and to list all defaulters, respectively.
Habits of Borrowers
There is a preference for Chama’ s, SACCO’s and M-Shwari as a source of funding. App loan amounts are too small for significant investments.
Majority of the customers took up loans to smooth consumption, emergencies or to boost business.
They don’t understand terms and conditions of app loans and they don’t understand credit reference.
There are three types of borrowers: repayers (who pay loans on time), defaulters (who don’t understand the consequences of being listed), and jugglers who take both traditional and app loans – but if they are financially stretched, they are more likely to repay the traditional loans.
Customers have learned to game the system through timely repayment of loans and juggling multiple borrowers.
There is no extra “PIN” required to request and withdraw an app loan and some family members have done this in secret leading the phone owner to default on a loan.
Digital credit usage doubled in Kenya between 2015 and 2016, with awareness and usage of digital credit by far lower in rural Kenya.
Digital credit, which offers privacy, is replacing shop credit and family/ friends as financiers.
The simplicity of the loan application procedures matters; too much information requested or if there are too many variables that make it confusing, makes potential borrowers drop off.
Download a loan app or use USSd
App usage is rather low – and this probably related to lower usage of smartphones as their batteries rarely last a full day as compared to cheaper feature phones that retain battery charge for several days of use.
Phones are mainly used for money transfer, deposits, and withdrawals. There is little usage to get information or to browse the internet
64% of respondents in the survey had a basic phone (57% in 2015). Smartphones were 14%, growing slightly and off-setting feature phones which declined slightly to 26%.
Loss of a phone may result in a borrower defaulting on repayment.
Credit Reference Bureaus
Formal lenders require clearance from a credit reference bureau (CRB) which costs $22 (i.e Kshs 2,200) and that may exclude borrowers from formal finance. App loans don’t require this, e except that borrowers have not been black-listed.
One concern is there is little understanding of credit reference bureaus, and of channels for redress of any disputes.
Not all fintech’s report loans to credit reference bureaus.
App loan costs
High loan/interest charges are not a concern as they are comparable to other informal money lenders
At the time of the survey, M-Shwari issued 62 million loans (worth Kshs 1.3 trillion), while Equitel and KCB about 4 million each. In comments to accompany the release of their 2017 bank results last month, KCB had 13 million mobile customers, Equity Bank has 12.1 million, while a CBA statement noted that the bank also serves 33 million mobile savings & loans customers, in East Africa, in partnership with mobile money operators.