The Kenyan Housing market in 2020 is littered with houses for sale or rent, with continuously dropping prices. In many farming areas, dairy and maize farmers are complaining about low sale prices. As with most markets, the existence of competing providers of a good or service leads to a drop in sale prices.
Buyer Power: The buyers for farming produce, mainly middlemen and supermarkets, are able to negotiate lower prices due to competition. However, one market is unique: the banking market for loans and deposits in Kenya.
Yes, banking IS a market. Borrowers “buy” or “rent” money when they borrow money and pay an interest rate. The interest rate, then, can be viewed the same way one would view rental charges. Similarly, Depositors “sell” or “rent out” money when they place their funds in a bank.
Most Importantly: Even if bank customers do not view themselves as operating in a market, the banks surely do.
The Kenyan Consumer as The “Buyer” of Loans
Up until November 2019, Kenyan borrowers’ bank loan interest rates were legally limited to a maximum of 13.5 percent per annum: article here . However, many borrowers relied heavily on digital lenders, charging up to 200 percent per annum (see below). Now that the interest rate cap has been removed, it is unclear whether or not new loans are still being offered at a maximum of 13.5 percent per annum. A recent Interactive session hosted by the Kenya Bankers Association didn’t seem to fully answer the question (transcript available here.)
Non-Bank Digital Lenders
The over 50 digital lending companies in Kenya are getting increasing scrutiny. Bloomberg recently highlighted the issue of digital lending in Kenya. In this article, authors Zeke Faux and David Herbling cite examples of loans like those from Tala that charge up to 180 percent per annum.
The aggressive debt collection methods used by digital lenders have attracted the attention of the Central Bank of Kenya. In a February 2020 article, the Daily Nation cites a recent suicide by a borrower as one of the reasons that has spurred regulatory action by the Central Bank.
Bank Owned Digital Lending (Mobile Money Lenders)
Most Kenyan Banks have also launched Digital Lending Platforms. In one case, according to the Business Daily, NCBA Bank’s Mshwari Loans attract a 395 percent annualized rate. In a recent online Op-ed, Dr. David Ndii, a leading economist, has indicated that NCBA Bank’s STAWI loan product charges a 75 percent Annual Percentage rate on 1 month loans targeting SMEs.
Borrowers’ Willingness to Move their LoansLack of Information for Borrowers
Borrowers are often don’t know how to get basic loan related information such as checking their FREE ANNUAL CREDIT REPORT (find out how to here). From research conducted based on over 1,000 responses on our website, over half of borrowers would move their loans if they could get better interest rates (full online survey results).
Hopefully, with increased competition and consumer awareness, more borrowers will join our list of subscribers who have benefited from our interest rate negotiation service.
Up Next: The Kenyan Consumer as a “Seller” (Depositor)