This archive report was first published on 12 November 2019.
With the repeal of the interest rate cap, banks are expected to increase competition against digital lenders by pricing customers according to risk, analysts say.
According to analysts, lenders will target the low-end enterprise market with facilities such as Stawi loan, which offers longer-dated loans to help penetrate the market share of digital lenders.
“Banks will be eager to grow their loan books which had contracted for the last two years, so I see them dispensing more loans and providing more competition to lending apps,” said Kingdom Securities analyst Merceline Gatebi.
President Uhuru Kenyatta signed into law the Finance Bill, 2019, repealing the cap on bank interest rates and launched Stawi loan app, an SME lending platform for commercial banks.
The capping of bank interest rates in September 2016 saw the proliferation of lending apps and shylocks as Kenyans sought alternative credit lines.
Small borrowers were the most hit due to increased risk mitigation measures, leading to the tightening of credit standards by commercial banks.
Key players in the digital lending space include Branch, Tala, Zenka, and Pata Pesa, which have attracted massive funding from investors to dispense billions in loans annually.
Analysts have called on policymakers and banks to devise ways in which big lenders can now price risk more effectively, saying credit to households may not rise significantly.
“We need to seriously look at the issue again because banks may not substitute digital apps since they can just decide to focus on big borrowers,” said George Bodo, the head of financial sector research at Ecobank.
“The two sectors are in partial competition but not direct. There has to be a new way of thinking in terms of risk pricing,” said Mr Bodo.
