Page 51 - Ramco JO SACCOStar _Vol 50.indd

OPINION
SACCOs EVOLVING in the ERA of
DIGITAL LENDING
By Stephen Ngunjiri
Over the last 10 years, digital lending has driven demand
demand and expanded supply of credit to a large
portion of borrowers arising from reduced transaction
and information costs associated with lending.
Savings and Credit Cooperatives Societies (SACCOs) are
increasingly leveraging digital technologies to keep up with
changing market trends while efficiently managing credit risks
and other lending processes.
Many SACCOs are now offering digital loans to their members in
compliance with rules set by the regulator. The digital lending
space has been disrupted by different loan applications,
challenging traditional players such as banks and SACCOs.
The entry of SACCOs into this space is seen as a move to protect
their interests as well as provide a source for their members to
get short-term loans.
Facilitating this, Kenya has continued to experience growth
in mobile network coverage as well as internet penetration.
Rapid technological changes in telecommunications, as well as
reduction in prices of handsets, have greatly contributed to new
value-added services from telecoms companies.
These services include USSD and mobile money services. The
success of mobile has hugely contributed to the growth in
digital credit. It is estimated that there are about 22 bank and
non-bank digital credit providers in Kenya.
However, more financial institutions, as well as financial
technology, continue to introduce new products related to
consumer technology.
For the past few years, digital credit providers and financial
institutions have been providing unsecured credit leveraging
on the telecommunication services.
Despite an initial slow start, a supportive regulatory environment weaknesses and gaps.
has increased the uptake new digital credit services; total credit
provided by banks via mobile channels continuing to rise.
Other building blocks that have hugely contributed to the
growth in digital lending include identity-linked digital
footprints, automated credit scoring, agency networks and
credit information sharing.
Currently, mobile credit services mainly based on mobile money
transfer are used for loan disbursals and to manage repayments.
Using mobile channels to advance loans opens access to credit
to a segment of the population that don’t have access to financial
institutions but own a mobile phone.
Credit products can be easily accessed and very useful in
unexpected situations such as medical emergencies. These
digital products are typically low –valued unsecured and have
short repayment periods.
For credit risk assessment of borrowers, to determine risk profile
and amount, digital lenders analyze data from various sources.
These sources include mobile money transactions, airtime
usage and retrieving related records from Credit Reference
Bureaus (CRBs).
For instance, in March 2020 Dimkes SACCO introduced a mobile
loan application known as M-Chipuka to gives its 26,000
members a chance to instantly access loans.
The move to digital lending by leveraging technology safeguards
its markets while improving efficiency. Other SACCOs have also
introduced similar products into the market.
Due to the unsecured nature of digital lending, credit providers
tend to reduce their risk exposure by charging fees that are
relatively higher compared to the conventional loan products
with interest going as high as 43 per cent per month.
As a result, there has been an increased concern regarding the
regulation of digital lenders. As there is no real collateral digital
lenders rely on data gathering.
The Digital Lenders Association of Kenya (DLAK) has been
established for self-regulation and looking at the various
However, digital credit can help individuals and small
enterprises to scale and manage their daily cash flow and also
growing financial inclusion.
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