This archive report was first published on 5 July 2021.
Kenya's Finance Act 2021, enacted on June 30, 2021, has introduced a 20% excise duty on loan-related fees and commissions, effective July 1, 2021. This new tax will increase the cost of mobile loans, making them more expensive than traditional bank loans.
Mobile lenders such as NCBA, which runs the M-Shwari platform, have started sending messages to borrowers informing them about the higher charges. For instance, a message from NCBA stated, 'Dear customer, following the enactment of the Finance Act 2021 by the Government of Kenya, we wish to inform you that beginning July 1st, 2021 the fees on your M-Shwari loan will be subjected to Excise Duty at 20 per cent deducted at loan disbursement.'
As a result, M-Shwari's fees will rise from 7.5% to 9%, while KCB M-Pesa loans will increase from 7.35% to 8.64%. Fuliza and Absa Kenya's Timiza loans will also be affected. Family Bank notified its customers, saying, 'Dear customer, following the enactment of the Finance Act 2021, please note that beginning July 1st, 2021 all loan related fees and commissions will be subject to 20 per cent excise duty.'
According to a report, the cost of mobile loans will now be higher than normal bank loans due to the dominance of facilitation fees. A bank leader was quoted as saying, 'Before the new tax, borrowers paid a facility fee of 7.5 percent for the M-Shwari loans, amounting to an annualized interest rate of 90 percent. On Fuliza, the fee is 1.083 percent daily or 395.2 percent annualized, underlining the high cost of using the short-term credit services regularly.'
Other prominent lenders such as Equity Bank are expected to follow suit. The new tax may also impact Standard Chartered Bank's move to venture into mobile lending. Mobile loans given by unregulated lenders could be costlier as lenders inflate on fees to reap maximum profits.
