Tuesday, January 31, 2023

Opinion: How Kenyans saving and borrowing on M-Shwari are exploited

One of the most critical pieces of advice that personal finance experts give is for Kenyans seeking to grow wealth to avoid taking mobile loans.

This is because in Kenya, mobile loans are really exploitative. Some of them attract interest charges of over 100 per cent per annum.

Currently, one of the most popular mobile loans is M-Shwari. By 2022, Kenyans had deposited Sh. 571 billion in savings in M-Pesa. Loans taken from this platform totaled about Sh. 100 billion.

According to prominent Kenyan data analyst Elijah Samuel, the M-Shwari mobile saving and lending is designed in such a way that the saver and the borrower will always lose. Like they say, the house always wins! To demonstrate the exploitation of mobile loans, Elijah Samuel penned the following feature and figures on his social platform:

“Locking money in an M-Shwari Lock Saving Account earns an interest rate of up to 6% PER ANNUM (per year), but its dependent on the amount of money locked i.e. (Less than 20,000 – 3%, 20,001 – 50,000 – 5% and above 50,000 is 6%).

Haya, even saving in a normal Mshwari account comes with an ANNUAL Interest Rate of up to 6.3%.

Okay, not bad though; and is comparable with what some banks offer and maybe even slightly higher than other banks!

Well, have you ever thought about this? An M-Shwari Loan attracts a charge of 9% (7.5% facility fee and 1.5% Exercise Duty) in just one MONTH!

Yes, I know convenience is key, but, what about the interest on savings? Doesn’t the bank (NCBA and/or Safaricom) benefit immensely from the Savings?

Now, assuming both (Savings and Loans) are recalculated into daily interest and daily charges respectively ; then, a LOAN carries a DAILY Charge of 0.25% (excluding the Exercise Duty, and 0.3% when considering the Exercise Duty), while the INTEREST carries a daily rate of about 0.008% (when considering a Savings of less than 20k)!!! Such a huge difference!

Let me show the difference even more clearly:

Bwana Elijah locks 4,000 KES for 30 Days in his Mswari Lock Account; after the period; he will have accrued an interest of roughly 10 KES and so, Safaricom will credit his account with about 4,010 KES. By the way, I did this last month.

At the same time; Samuel takes a loan of 4,000 KES from Mshwari and repays after 30 days. Samuel will be charged about 360 KES and hence will end-up repaying about 4,360 KES in the same period.

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So, the Safaricom and/or NCBA makes a profit of about 350 KES (one saved 4,000 the other borrowed the 4,000 and so, it’s the same money which was circulated)

Think about now 50,000 KES? The interest on locked account will be estimated as about 205 KES, while the Loan Charges will be about 4,500 KES after 30 days, a whopping difference of 4,290 KES

Anyway, I might be overthinking and by any chance the big boys in the market have to continue making the huge profits. Ehe, they will even mention risks in lending. But does that justify the huge difference. Lakini, kwani profits itatoka wapi?”

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