Equity Bank yesterday pulled down interest rates charged on mobile phone-based loans, breaking ranks with rival Kenya Commercial Bank (KCB) and Commercial Bank of Africa (CBA), as it moved to comply with the new law capping the price of loans.
Equity Bank chief executive James Mwangi said customers borrowing through the lender’s Eazzy loans (its mobile phone-based credit offering) will be charged at the maximum rate of 14.5 per cent per annum on a reducing balance – a figure that translates to approximately 0.65 per cent per month.
“You can’t partner with a non-bank institution – a fintech or telcom – and pretend you can be outside this law – it says directly or indirectly. The issue of mobile is clearly spelt in this law,” said Mr Mwangi.
The new law states that “A person shall not enter into an agreement to borrow or lend directly or indirectly at an interest rate in excess of that prescribed by law.”
KCB and CBA, who have both partnered with Safaricom’s M-Pesa, have held that mobile phone loans do not fall under the provisions of the law and have retained the old pricing.
Mobile loans, disbursed at annual rates of between 60 per cent and 100 per cent, have been a huge source of income for commercial banks and their coming under the capped interest rate regime could mean a big fall in interest income.
CBA said it would retain its loan facility fees unchanged at a flat rate of 7.5 per cent in a communication sent out to M-Shwari customers yesterday.
The bank, however, said it would pay M-Shwari deposits a return as per the new law at 7.35 per cent, which is 70 per cent of the Central Bank Rate (CBR).
CBA group managing director Isaac Awuondo has defended the bank’s position, arguing that it charges a transaction fee and not an interest rate.
KCB has argued that mobile loans are unique products that fall under micro lending and therefore stand outside the reach of the new law.
“The law does not speak about microfinance institutions at the moment and our mobile lending is currently a micro-business product in the industry,” KCB Group CEO Joshua Oigara said in a previous briefing.
KCB charges a flat interest rate of six per cent for 30-day loans, five per cent of 60-day and four per cent for three-month credit.
Co-operative Bank, which offers M-Co-op Cash, has been mum over the issue even as the management said it was still weighing the implications of the law.
Co-op charges a facility fee, at 10 per cent upfront for a monthly loan, 12 per cent for a three-month facility and seven per cent for its monthly business loan and secured personal loan.
Credit: Business Daily