Mobile loan borrowers ignore 20% tax hike

Digital loan borrowers remain oblivious to tax measures that have increased credit costs over the past two years. FILE PHOTO | NMG

Digital loan borrowers remain oblivious to tax measures that have increased credit costs over the past two years.

Fintech leader Tala says borrowers are still flocking to the mobile app for short-term loans despite the new 20% excise tax on fees.

“You know, the numbers haven’t changed so much that we’ve made mounts of about $1.5 billion in the market since we launched. And we haven’t seen our multi-month numbers change,” he said. said Mumbi Annstella – senior director of national growth – Tala.

“And that’s similar to what we call our repeat rate, how many people actually come back to borrow, and it always stays at 90 to 95 percent over the years.”

Last-minute changes proposed to the Finance Bill led MPs to impose an excise duty on fees charged by digital fintech lenders following a similar charge on mobile phones operated by banks and telecom operators last year.

Last year’s levy did not deter lending through platforms such as Fuliza, which disbursed 502.6 billion shillings in the year to March 2022, translating into an increase of 43, 1% compared to 351.2 billion shillings lent over a similar period the previous year.

“I would say that to date the tax has not yet affected the number of people borrowing from our platforms. But given that we just implemented it this month, we are still waiting to see how the statistics, if it will impact our business in any way,” Ms Mumbi said.

“The 20% exercise tax applied to their interest rates for their loans is very similar to the experience we have seen with formal lenders such as KCB who have been subject to the exercise requirement, to from last year.”

Digital lenders have now joined traditional credit providers such as banks and micro-financiers in paying the excise tax that is expected to net the Kenya Revenue Authority billions of shillings.

Parliament approved changes to the law which imposed a 20% tax on fees and commissions levied on bank credit, triggering an increase in the cost of mobile loans from July 1 last year.

The imposition of the tax has driven up the cost of mobile loans such as KCB M-Pesa and M-Shwari and overdrafts include Fuliza, jointly owned by Safaricom and NCBA Group.

The new taxes have not slowed mobile borrowing which has exploded as dozens of unregulated microlenders have invested in Kenya’s credit market in response to growing demand for fast loans.

Where they had little or no access to credit, many Kenyans are now discovering that they can get loans in minutes through their mobile phones.

The Central Bank of Kenya said the number of borrowers using digital loans from unregulated lenders rose from 200,000 in 2016 to more than two million in 2019.

Kenya has seen a proliferation of digital lenders targeting the banked and unbanked, overwhelming borrowers with high interest rates and leaving regulators scrambling to keep pace.

The surge in mobile phone borrowing has pushed defaults up, prompting regulators to try to restrict the industry, including kicking digital lenders out of the Credit Reference Bureau mechanism and regulating the industry through the Bank. central Kenya.

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