Banks maintain the new rate caps that could see them lose billions in revenue from microloans are not applicable to the mobile-based products.
Most banks offering the products charge interest rates at rates of between five per cent and 10 per cent a month, which when compounded annually ranges between 60 per cent to over 100 per cent.
Leading issuer of micro-loans Commercial Bank of Africa said last Friday it is insulated from the changes as its mobile-based micro-loans are “fee-based”.
M-Shwari disbursed Sh40 billion in credit by end of 2015, according to Safaricom, the telecoms partner.
“We are very clear about Mshwari loans being fee-based, the charge is not interest. It is a one-time facility fee. Facility fees are not restricted. It is a contractual deal,” Isaac Awuondo, group managing director at Commercial Bank of Africa said.
The bank’s terms and conditions state that customers will pay a ‘facility fee’ of 7.5 per cent within 30 calendar days of disbursement.
Co-operative Bank which offers M-Co-op Cash also charges a facility fee, at 10 per cent upfront for a monthly loan, 12 per cent for a three-month facility and seven per cent for its monthly business loan and secured personal loan.
In 2015, M-Co-op Cash service had more than 2.7 million registered users and supported over 12.5 million transactions. More than 183,000 loans were disbursed through it.
Equity Bank, whose new mobile banking and communications platform Equitel had issued loans worth Sh20.8 billion by end of June, may be one of the largest losers if the law is applied on the microloans as it charges two per cent to 10 per cent per month on ‘EAZZY’ loan.
This could be annualised at between 24 to 120 per cent per year and capped at four per cent above the base rate set by the regulator.
KCB Group chief executive Joshua Oigara was quick to defend his mobile-based loan book that charges interests on KCB-Mpesa loans.
“The law does not speak about the microfinance institutions at the moment and our mobile lending is currently a micro business product in the industry,” he said in an earlier interview.
KCB M-Pesa has disbursed Sh10.3 billion in loans to its customers since March last year. According to the bank’s terms and conditions, customers are expected to pay four per cent monthly on a 30-day loan, three per cent monthly for a 90-day loan and two per cent monthly for an 80 day loan.