Digital lenders raise minimum loan value to above Sh1,000 to mitigate default rates.

Digital lenders in Kenya have raised the minimum loan value to above Sh1,000 in response to the Central Bank of Kenya's (CBK) regulations that barred them from negatively listing defaulters on small ticket mobile phone credit.

The lenders were spooked by high default rates on loans below Sh1,000, so they raised the minimum loan value to list defaulters with the credit reference bureaus (CRBs).

The Digital Financial Services Association of Kenya (DFSAK) says its members have had to evolve with the CBK (Digital Credit Providers) Regulations, 2022, which, among other things, barred them from listing defaulters on below Sh1,000 debt.

"The law is very clear that amounts below Sh1,000 cannot be reported, so the limit for most of our loans is now closer to Sh2,000. We are very strict on the type of customers we give loans to nowadays," said Kevin Mutiso, chairperson at DFSAK.

"Customers are still similar, but we have reduced the probability of default. So those who used to borrow say, Sh500 on our platform now can't."

The CBK had by March licensed 32 digital credit providers, binding them to the regulations that also bars them from using obscene or profane language or making "unauthorized or unsolicited calls or messages to a customer's contacts" in the name of recovering defaulted loans.

DFSAK, formerly the Digital Lenders Association of Kenya, previously found that 55.5 percent of its borrowers use the loan amount to boost the working capital for small businesses while 24.8 percent use it to cover unexpected expenses. Another 13 percent use it to pay school fees.

Digital lenders have been keen to shield themselves from high default rates, having seen this trend from April 2020 to part of last year when the CBK blocked them from listing defaulters with CRBs due to the misuse of the credit information platform.