Kenyans borrow Sh1.2bn per day from Fuliza, M-Shwari

Kenyans borrowed nearly Sh1.2 billion every day on Fuliza and M-Shwari mobile loans last year, signalling a deepening debt dependence that increased with last year’s massive job losses caused by the Covid-19 pandemic.

NCBA Bank financials released yesterday show the lender advanced a total of Sh432 billion Fuliza and M-Shwari mobile loans, which averaged about Sh1.18 billion every day, and represented a 30 percent jump compared to the Sh330 billion lent in 2019.

The 2019 merger of CBA Bank and NIC Group PLC created NCBA Group, which controls the two popular mobile loan platforms Fuliza and M-Shwari.

The total loans taken by hard-pressed Kenyans are equivalent to the amount spent on building the Mombasa-Nairobi Standard Gauge Railway (SGR) plus enough balance to construct a significant part of the extension to Naivasha. It can also fund half of Kenya's total annual development budget or comfortably run the Ministry of Education programmes for a year.    

Read: Women pay double to access mobile money services

The Fuliza and M-Shwari loans are offered in partnership with Safaricom, but the bank underwrites the risks attached to the borrowers.

Digital loans

"Digital loans for us speak mostly about M-Shwari and Fuliza. We are the bank for the other half of those two products. We provide the loans," NCBA Group Managing Director John Gachora told the Nation in an interview.

"The reason for that high number is because these are short-term loans, so sometimes an individual may take a loan three times on the same week. We count each disbursement as a new loan," Mr Gachora said yesterday.

Overdraft facility

NCBA said most of this growth came from Fuliza, a mobile overdraft facility that runs on MPesa, which recorded a growth of about 25 percent last year. Mr Gachora said the bank, however, registered a slowdown in M-Shwari loans growth.

"There was a slight reduction in demand for M-Shwari loans. Kids were out of school and this explains it since a lot of them are taken by parents taking children to school," Mr Gachora said. He said day traders also take a significant portion of the M-Shwari loans, but in 2020 a number were out of business due to the Covid-19 pandemic.

 Read: KCB increases interest on mobile loans

"We saw about 25 percent growth was in Fuliza loans. We are expecting that to continue beyond this year. There are other products like Stawi that we think if we get them to be well known and accepted, they have growth prospects as well," he said. 

Take loans

Fuliza was introduced in January 2019 and is popular among low-income earners who take loans of less than Sh2,000 for their daily needs, with the debt typically settled after sales are made or wages received.

 Fuliza charges a one-off fee of 1.083 per cent or 395.2 per cent annualised rate, underlining the high cost of using the short-term credit service regularly. Most bank and Sacco loans are priced at between 12 per cent to 14 per cent per year, but lock out people without steady income streams.

 The NCBA MD said the rise in the lender’s provisions for bad loans is partly attributable to the rise in M-Shwari debt defaults.

 "We saw significant challenges on the M-Shwari product last year. It was a big contributor to the (loan loss) provision of Sh20 billion. We had significant stresses," Mr Gachora said.

 The typical defaults rates for M-Shwari ranges between 3 to 3.5 percent. The default rate, however, shot up to about 8 percent in some months last year.  

NCBA yesterday reported a 42 percent dip in profit after tax to Sh4.6 billion, the second-biggest drop among top-tier lenders after Absa Bank after it increased its bad loans provisions by Sh20 billion.

 Drop in profits

Absa Bank last week reported a 44 percent drop in profits to Sh4.1 billion after it more than doubled its loan loss provisions to Sh9 billion. 

 Banks make provisions for bad loans to deal with potential loan defaults and related expenses. The increased provisions come at a time when the industry is recording a sharp rise in non-performing loans, necessitating the huge provisions, which are now hitting the lenders bottom lines hard. 

 NCBA said it increased its net operating income by 38 percent to Sh46.4 billion, despite the pandemic. Its total interest income also surged by 73 percent to Sh44.2 billion.

This rise, however, was wiped away by the increase in provisions for bad debts as it prepared to deal with defaults. The lender said its non-performing loans rose 19 percent to Sh40.1 billion in the period.

This is the first time NCBA is announcing full-year results as an entity following the merger between NIC Group PLC and CBA in October 2019.

 "We implemented a robust cost containment plan that reduced operating expenses and contributed to the operating profit increase," Mr Gachora said.

The lender said it restructured loans worth Sh78 billion and increased credit provision reserves by Sh20 billion to address the uncertain economic environment that continues to persist.