NAIROBI (Xinhua) --
Kenyan banks continued to make billions of
shillings in profits in 2018 despite the capping of interest
rates about two years ago.
But that is not the
remarkable thing that happened in the east African nation’s
financial sector in 2018; the rise and rise of digital credit is
what has left an outstanding impression in the industry this
The year can aptly be described as a "digital credit year" as
the east African nation not only experienced an explosion in the
number of service providers but also digital lenders
aggressively came out to market their products.
As the year draws to an end, the number of digital lending
apps in Kenya stands at about 50, with nearly half of the
players having joined the industry this year.
The Majority of the lenders are start-ups and several Kenyan
banks has also joined the fray this year as they sought to
protect their turf and cash in on high interest rates.
Kenya Commercial Bank, Equity Bank, Commercial Bank of
Africa, Family Bank are among the formal lenders currently
offering digital credit.
But they are facing stiff competition from the independent
digital lenders, some of which are unlicensed and disburse loans
between 500 shillings (0.49 U.S. dollars) and 980 dollars to
Digital lenders in the east African nation charge one-off
interest rate of between 7 percent and 15 percent, with the
loans payable from a day to a month.
The rates are not subject to interest capping at 4 percent
above the Central Bank’s rate that currently stands at 9
Banks are charging a maximum of 13 percent per annum on
loans, the reason why many have started the digital loan apps.
The explosion has come with mixed fortunes though for the
east Africa nation’s residents, empowering some while sinking
others into debt.
"I have enrolled to four apps, and from one of them I can
borrow 30,000 shillings and the rest between 4.9 dollars and 49
dollars. I borrow mostly to buy stock for my business,"
vegetable store operator Grace Mutuku said on Wednesday.
The trader, who is based in Komarock on the east of the
capital, noted that while the interest rates are higher, the
fact that the loans are instant and one can borrow from multiple
lenders without any restriction is what has made her use the
"I think this is the best thing to have happened in the
"Initially, I relied on micro-finance for loans, a process
that took time and needed guarantors but the loan apps changed
things for the better," she said, noting she started using the
apps in March after her husband introduced them to her.
But the story is different for some borrowers, who have taken
money from multiple lenders, failed to repay and have themselves
listed in industry data as un-creditworthy, a move that locks
them from several services, including those offered by the
"I will repay a loan I took five months ago when I get money.
"My name is already listed as a defaulter by the Credit
Reference Bureau and it bothers me," Bernard Ochieng, a mason,
recounted, noting sometimes he borrows to bet.
About 6.5 million Kenyans have taken mobile loans and half of
them are repeat borrowers, according to a recent joint survey by
the Central Bank of Kenya, Kenya National Bureau of Statistics
The survey noted that 35 percent of the digital borrowers use
the money to meet their day-to-day needs, but the most, 40
percent, use it for business.
Ernest Manuyo, a business management lecturer at Pioneer
Institute in Nairobi, said that digital lenders top the list of
disruptive technologies that shaped the banking sector in 2018.
"We are seeing the apps cannibalize business for banks,
micro-finance institutions and even savings groups.
"Kenyans have virtually become digital borrowers and the
number of users and lenders has soared this year," he said,
noting the faster growth in service providers is offering
traditional lenders stiff competition.
In September, Kenyan financial sector regulators including
the Central Bank, Capital Markets Authority and Insurance
Regulatory Authority acknowledged that digital credit channels
have expanded inclusion by reducing borrowing constraints,
warning this is happening without proper supervision and thus
comes with risks.
"Digital credit predisposes the economy to risks that include
money laundering, terrorist financing and technology risks," the