70% of mobile loan defaulters borrow again and fail to pay up, study reveals


70% of mobile loan defaulters borrow again and fail to pay up, study reveals

In Summary

  • Ironically, mobile lenders are open to contracting with loan defaulters as the bad apples take up more loans after a negative listing compared to their peers in brick and mortar borrowing.
  • The inability to recruit new borrowers has been attributed to the observed tapping of the onetime bad debtors by lenders even as they suffer burnt fingers from the subsequent loan defaulting.
  • Nevertheless, lenders have chosen to award better graded borrowers with higher loan amount averages with the high predictive power of loan issuance having kicked in with the introduction of credit-risk pricing of potential borrowers.

70 percent of mobile loan defaulters will borrow again and still default on the new credit facility to mirror the deterioration of the quality of borrowers.

Data contained in a just released report by the CreditInfo Credit Referencing Bureau (CRB) further shows. mobile loan defaulters are likely to default again on new loan issues in comparison to their traditional banking channel counterparts.
“In spite of getting opportunities to borrow after previous defaults, some debtors are still ending up with bad loans on the new facilities. This is a character issue and largely a show of financial mismanagement,” CreditInfo Chief Executive Officer Kamau Kunyiha said.

Ironically, mobile lenders are open to contracting with loan defaulters as the bad apples take up more loans after a negative listing compared to their peers in brick and mortar borrowing.

The number of mobile customers with a new loan after a prior default came in at 398,160 between November 2018 and April this year while the traditional defaulters accounted for a lesser sum of 115,869 loans.

Meanwhile, banks accounted for 93 percent of all mobile loan issues over the review period to represent the industry’s undisputed dominance in credit issuance.

The inability to recruit new borrowers has been attributed to the observed tapping of the onetime bad debtors by lenders even as they suffer burnt fingers from the subsequent loan defaulting.

“None of the new lenders are coming in to create new borrowers. Some creditors have therefore decided to take a view on some of the defaulters and have recruited them,” Mr. Kunyiha added.

Nevertheless, lenders have chosen to award better graded borrowers with higher loan amount averages with the high predictive power of loan issuance having kicked in with the introduction of credit-risk pricing of potential borrowers.

Incidentally, older borrowers have proven to be the better and mature debtors to take up more loans in both volumes and size as youth are exposed as the less prudent borrowers.

As such 50 percent of all mobile loans disbursed over the six months review period have been issued to individuals aged between 31 and 40 years while youth aged 25 and below command a lesser stake of the credit pie.

Male borrowers have meanwhile been more active in the loan market than women to scoop 65 percent of all digital loan issues with an average loan amount of Ksh.6,086.

Of the 19.1 million issued loans in the period which were valued at Ksh.112.2 billion, 4.5 million individuals represented the loan takers with the balance of the issued credit going to 855 registered companies.
The rate of default for the average three-month tenured loans was meanwhile calculated at 10.7 percent or an equivalent Ksh.1.8 billion.

However, of the hundreds of digital lenders, only 15 mobile loan issuers shared their loan contracts with CRBs databases to uncover gaps to the credit reporting framework.

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Story By Kepha Muiruri
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