Digital lenders have responded to the Central Bank of Kenya (CBK) regulations by increasing the minimum loan amount to over Sh1,000.
These regulations prohibit them from adding small ticket mobile phone credit defaulters to negative lists.
The decision to raise the minimum loan threshold to over Sh1,000 was prompted by concerns over high default rates on loans below this amount.
Lenders made this adjustment to comply with the CBK (Digital Credit Providers) Regulations of 2022, which restricted their ability to report defaulters with the credit reference bureaus (CRBs) for debts below Sh1,000.
According to Kevin Mutiso, the chairperson of the Digital Financial Services Association of Kenya (DFSAK), these regulations are explicit about not reporting amounts below Sh1,000.
As a result, many lenders have now set their minimum loan limits closer to Sh2,000 and have become more selective in approving loan applications to ensure compliance with the law.
“Customers are still similar but what we have done is reduce the probability for default. So those who used to borrow say Sh500 on our platform now can’t.”
The CBK had by March licensed 32 digital credit providers, binding them to the regulations that also bar them from using obscene or profane language or making “unauthorised or unsolicited calls or messages to a customer’s contacts” in the name of recovering defaulted loans.
DFSAK, formerly the Digital Lenders Association of Kenya, previously found that 55.5 percent of its borrowers use the loan amount to boost the working capital for small businesses while 24.8 percent use it to cover unexpected expenses. Another 13 percent use it to pay school fees.
Digital lenders have been keen to shield themselves from high default rates, having seen this trend from April 2020 to part of last year when the CBK blocked them from listing defaulters with CRBs due to the misuse of the credit information platform.