Commercial Bank of Africa (CBA) has warned that it may shut down M-Shwari if it is forced to lower its facility fee from the current 7.5 per cent to 1.2 per cent.
CBA, the market leader in the industry, said the costs of running the product, would make it shut down M-Shwari if forced to lend at the 1.2 per cent or less that the new law proposes.
CBA currently processes over 70,000 loans on M-Shwari in what has seen it as one of the biggest cash cows for the lender. Majority of the loans are repaid within 30 days and the average loans taken are Sh.3,000.
The bank, however, maintains that its product is shielded by the law since it does not operate an interest loan product, but a fee-based loan product.
“M-Shwari, as approved by the regulator, does not attract any interest rates on borrowing. What we levy is a 7.5 per cent facilitation fee. It is therefore not subject to the new provisions of the Kenya Banking Act in that respect. However, we will increase the interest we pay on M-Shwari deposits,” said CBA chief executive officer Isaac Awuondo. Apart from the overheads in running the mobile products such as marketing, labour, processing and operations, banks have also invested in high tech software infrastructure to support the mobile products.
For instance, it takes less than five seconds to process a loan on M-Shwari, and this is due to the massive infrastructure at the back-end that works on an algorithm and a borrower’s risk profile calculated from various indices, among them the credit history. CBA, which has more than 16 million customers, says it has put in over Sh2 billion investment in its product and a drastic cut would make it impossible to get a return on investment, given that it is not a term loan like other available products.
The Consumer Federation of Kenya has threatened to go to court on the matter, accusing CBA of just changing the name to suit their interests.