Most Kenyans turn to digital lending to grow small businesses: report

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Most Kenyans turn to digital lending platforms first when looking for sources of credit to fund the growth of small businesses, a new report has said.

The State of Digital Lending in Kenya Report 2021 by consumer intelligence firm ReelAnalytics shows that most Kenyans would seek business growth loans from sources such as close family members in the absence of digital lending platforms.

However, the report further finds that borrowing within family circles is less convenient, as loan accessibility is usually unpredictable.

Respondents also state that family funding is also much less compared to sources like digital lenders.

“Majority (over 60percent) of customers are satisfied with the services of digital lenders and that there really are not strong formal or institutional alternatives to digital lenders,” said the report.

Forty per cent of Kenyans interviewed in the report said they would borrow from relatives as their prime alternative to digital lenders compared to just 10 per cent who would opt for banks and Saccos.

M-Shwari is the most popular among five key digital lending platforms, influenced by its connection to the leading mobile service provider in the country (Safaricom) at 40 per cent score followed by Tala (36 per cent), Fuliza (30 per cent) Branch (23 per cent) and KCB-Mpesa at 22 per cent.

Forty per cent of Kenyans interviewed in the report said they would borrow from relatives as their prime alternative to digital lenders/PIXABAY

Safaricom’s overdraft facility, Fuliza was ranked as the most subscribed and most used over the last three months followed by M-Shwari. Most of the users of these fintech services are those in self-employment and those employed in the informal sector.

Other popular lenders are Zenka, Eazzy loan, Timiza, MCo-op Cash,Okolea and Kopa Cash.

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“Majority of Kenyans prefer digital lending platforms due to their convenience and easy access of loans compared to acquisition of loans from other credit service providers such as banks, saccos among others,” says the report.

The majority of Kenyans (92 per cent) interviewed in the report said interest rates charged by digital lenders was not a factor limiting their access to credit.

Key factors under consideration for most Kenyans were ease of access (39 per cent) and speed of disbursement (22 per cent).

The survey of 1,000 Kenyans across eight counties showed Nairobi, Mombasa and Nakuru having the most active users, with at least 57 per cent seeking digital credit from time to time.

An average of 48 per cent of residents in Nyeri, Meru, Eldoret, Kisumu and Embu have borrowed from one or more digital lenders.

Nationally, males dominate digital lending at 59 per cent due to multiple uses of digital lending platforms, followed by women at 41 per cent. Women have been considered as more ‘loyal’ and ‘default concerned’ borrowers.

While the rate of uptake was high among the employed, absolute numbers of self-employed people taking digital credit was higher.

“All top digital lending platforms popularity and usage is highest among self-employed Kenyans between 30-34 years,” according to the report.

The majority of Kenyans are not acquiring loans from digital lenders (24percent) mainly due to a lack of knowledge about these platforms/services or lack of interest in the platforms (23 per cent).

The finding comes even as the Central Bank of Kenya pushes to have digital lenders licensed like other financial institutions for effective regulation.

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In July, the regulator said licensing of digital lenders will grant it an oversight role, leading to a robust credit market and consumer protection.

CBK Governor Patrick Njoroge said the proposed law should provide the regulator with general supervisory powers for effective regulation.

“It should also permit digital providers to carry accidental business,” Njoroge told the National Assembly Committee on Finance and National Planning.

Their position contrasts with the Digital Lenders Association of Kenya (DLAK) that wants the proposed law to limit them to registration rather than licensing, saying this will prove costly for them.

”We would like to suggest that regulation should focus on the registration process instead of licensing. This is a common practice for the digital lenders’ regulations implemented in significant jurisdictions in the EU like Spain and Poland,” DLAK said.

The lobby group said while it supports the proposed law, treating them like deposit-taking entities will be unfair.

”We do not take deposits from the public and lend off our investments, profits, and capital, and as such, we do not pose a prudential risk and thus, capital adequacy requirements or prudential regulations are not a reasonable framework,” DLAK said.

Wanjiku Njuguna is a Kenyan-based business reporter with experience of more than eight years.

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