Metropol CRB is top of the list of credit reference bureaus in Kenya. A financial institution can limit your chances of getting a loan by submitting your name to this bureau. Some employers have also been using credit reports to narrow their list of candidates.
The consequences of a CRB listing are supposed to push defaulters to fulfill their obligations. Some financial institutions use them as a way of reminding borrowers to pay their dues on time. However, many Kenyans seem unbothered by CRB listings.
The demand for unsecured loans has been increasing over the years. Banks have been very aggressive in selling these loans to their clients. The target for such loans is, in most cases, salaried customers. It is easy to deduct installments directly from their paycheck.
The introduction of loan apps has increased the popularity of instant loans. You can hardly scroll your phone without interruption of an ad for a loan app. Thousands of Kenyans are downloading these apps to get quick cash.
The repayment period for most mobile loans is stretched over a month. The possibility of repaying and getting a new loan immediately keeps many borrowers hooked. The new loan may be a higher amount depending on the app.
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For most loan apps, repaying on time means that you can grow your credit limit. Hence, borrowers strive to repay on the due date and then borrow almost immediately. The sad part is that most borrowers have several loans from different apps.
Having several loans at the same time means that the borrower is borrowing from one to pay the other. In addition, Kenyans are losing lots of money in terms of interest rates. The game ends when one is unable to keep up with the interest rates and defaults.
Lenders follow the legal procedure to demand repayment. Eventually, defaulters end up at Metropol CRB Kenya or Transunion CRB. However, the effects of defaulting do not seem to deter Kenyans from seeking new loans.
Do lenders still check the credit scores of borrowers? Are instant loans still popular even with credit reference bureaus in place?
1. Ease of access
Many Kenyans borrow simply because they can. The ads for instant loans are so enticing and convincing. As the competition among lenders rises, creative ads have flooded television stations. You come across several billboards as you drive around reminding you of an easy loan.
The convenience of applying on a mobile device is also inviting. The processing is simple, private, and fast. In fact, loan apps process requests within minutes. The process is even faster for borrowers with a clean financial record.
Banks have also improved the process of issuing unsecured loans. Partnerships with mobile money services such as M-Pesa and Airtel Money have simplified lending. The highest percentage of Mpesa customers have tried the Mshwari services.
Safaricom’s partnership with Equity Bank and KCB has made it easy for Kenyans to access unsecured loans. Most lenders target business owners but end up with individuals. The trend will continue as other banks and SACCOs explore such partnerships.
2. Harsh economic times
Kenyans are not just borrowing for the fun of it. The tough economic times have made instant loans an easy option for many families. The high unemployment rate among young people has turned them into borrowers.
As Kenyans continue to raise alarm concerning the huge government loans, the effects are trickling down to households. High taxation rates and high lending rates have slowed the growth of businesses.
Have you noticed the timing of advertisements for instant loans? They seem to pop up when you really need cash. Well, the ads are meant to do just that, entice you to apply for a quick loan. You are not alone. Thousands make the same decision every month.
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3. No collateral required
Many defaulters whose names appear on Transunion CRB or Metropol CRB owe small amounts. Banks and other lenders do not require any security when issuing instant loans. A good credit score is the most important requirement.
If you dream of owning a loan app, CRB integration is necessary. You cannot rely on a client’s income alone to determine creditworthiness. Some app owners ignore bad credit but compensate for the convenience with high interest rates.
Security is necessary for large amounts of money. However, most borrowers seeking instant loans need less than Ksh.50,000. Most loan apps limit the loanable amount at this level. It takes a while to qualify for the maximum amount.
4. Flexible repayment periods
Borrowers have a month to repay instant loans. The promise of a higher loan limit encourages borrowers to repay on time. Some mobile apps offer loans payable within 3 weeks. As long as the loan is paid on time, the borrower does not incur any penalties.
A month is a long time for small amounts. However, as the loan amount increases, repaying within a month with the interest becomes a challenge. Sometimes lenders reduce the loan amount drastically without informing the borrowers.
For the borrowers who repay to borrow again, such changes affect their ability to repay other loans. The result is several months of constant reminders to repay. When lenders exhaust all means of recovering their money, they list the default with a credit reference bureau.
5. Data security
When mobile loans were quickly introduced, many borrowers were concerned about their personal information. The concern is still there but lenders have managed to convince borrowers of data security. Most app owners guarantee the same level of security as banks.
While security remains a concern, the pressing needs sometimes overshadow the concern. Borrowers are on many occasions concerned about the quickest solution. Nevertheless, financial institutions play their part in securing personal data.
Our final thoughts
Instant loans will continue to trend as long as the competition in the financial markets remains. Every bank wants a big share while many SACCOs have transformed into banks. You too can be part of the big players. We help institutions and individuals develop agile loan apps.
Muva offers Metropol CRB integration and other bureaus as well. However, you need to educate your borrowers on the right reasons for applying for loans. It is easy to share financial tips when lending through a loan app.
