KCB has stopped offering three and six month loans on its mobile platform soon after it reduced the effective annual interest rate on the loans to 14 per cent.
The bank is now offering only the one-month loans on the KCB M-Pesa platform, for which it is charging a monthly interest rate of 1.17 per cent plus a one-off 2.25 per cent negotiation fee levied across all its loan products. This fee also attracts a 10 per cent excise duty.
“We no longer offer three or six month loans. We offer only one-month term loan. We are currently developing the capability to allow the customer to roll over (extend) and the bank will advise on the terms once the development is completed,” the corporate communications department at KCB told the Business Daily.
Borrowers previously had the option to pay back in one, three or six months, with the interest rate chargeable graduating downwards depending on the period.
The removal of the three- and six-month loan options came after KCB resumed lending on the platform Wednesday after a six-day hitch Kenya’s largest lender blamed on a surge in demand for loans.
Banks have been modifying the pricing of the mobile loan products to conform with the new interest rate regulations, thus bringing down the monthly interest chargeable on the loans.
Prior to the new law, KCB M-Pesa charged a monthly loan interest of six per cent for one month, five per cent for three months and four per cent for six.
Equity Bank has two options for its mobile loans, dubbed Eazzy, which is repaid within a month, and Eazzy-Plus, an instalment loan repaid over two to six months.
On the one month loan, Equity charges an appraisal fee of one per cent (that also attracts a 10 per cent excise duty), which is added to the interest that comes to no more than 1.17 per cent as per the legal limit.
The interest on the instalment loan on the Equity platform is levied on reducing balance.
Failure to settle the Equity loans on the due date results in the debt being rolled over as a fresh loan on the same terms as those of the original loan, meaning a customer is levied the fees afresh on the balance.
Commercial Bank of Africa (CBA), which offers the M-Shwari loan product, charges a flat 7.5 per cent fee on its mobile loan.
CBA has said the charge is not interest and therefore does not fall under those affected by the Banking Amendment Act 2016.
The private bank argues it is not necessary to review the fee since it is already lower than the 14 per cent legal cap.
The different interpretations of the levy structure of the mobile loans have put the ball in the court of the regulator (CBK) to interpret whether these loans ought to all be classified as interest-earning banking products, thus coming under the umbrella of the new rules.