The Interest rates in Kenya currently stands at an all time high of between 28 and 30 percent thanks to the government’s decision to partake in a borrowing spree both from International and domestic market. Today, banks are not willing to give individuals and small scale private players loans as the interest they get from government’s T-Bills and Bonds of 20 percent are very mouth watering.
Although everyone is busy complaining about the increased interest rates coupled with a weak shilling, Kenyans haven’t realized that the highest interest rates someone has ever paid for a bank loan is on the beloved Mobile Money Loans especially the M-Shwari Loans. Ever since its launch, M-Shwari has been charging people a monthly interest rate of 7.5 percent but at the same time lying to Kenyans that they do not charge any interest on their loans – that the 7.5 percent is a loan processing fee. Okay, they may call it a loan processing fees, but the 7.5 percent on loan amount per month still comes to 90 percent processing fees on the loan amount per year. Since the 90 percent interest has been masquerading as 7.5 percent per month, no one seem to have noticed that M-Shwari is a money fleecing scheme by Commercial Bank of Africa and Safaricom.
This is how M-Shwari works as a money fleecing scheme
Let us assume that you want to borrow Kshs 4,000 from M-Shwari every month for the next 12 months as you repay back the loan at the due date each month. How much money will you give M-Shwari for the Kshs 4,000? Each month you will pay M-Shwari Ksh 300 for the loan processing fee as you pay back the Kshs 4,000. For the fast month, you will pay back Kshs 4,300, then borrow back the Kshs 4,000 the second month, pay back Ksh 4,300 the second month, borrow back Kshs 4,000 the third month, pay back Kshs 4,300 the third month and so forth and so forth. At the end of 12 months, you will have borrowed ONLY Kshs 4,000 but paid back a total of Kshs 3,600 in loan processing fees.
To make it even clearer; the person borrowing Kshs 4,000 each month and paying back Kshs 4,300 at the end of each month has simply borrowed Kshs 4,000 one time, but at the end of every month for the next 12 months he gives M-Shwari Kshs 300 without taking in any additional loans. The Loan amount thus remains Kshs 4,000 but the annual interest accumulates to Kshs 3,600. Now, Kshs 3,600 is 90 percent of Kshs 4,000.
At the prevailing annual interest rates of 28 percent per annum, a standard and reasonable monthly interest rate, if it were adjusted for increased risk by 1%, should be no more than 4%, which would translate to a maximum of 48% interest rate per year. KCB launched their mobile money at this rate of 48% per year maximum on their monthly loans but has since increased the interest rates to a maximum of 72% per annum.
Starting today, borrowing money from KCB MPESA will attract interest at the rates of six percent per month for the monthly loans, five percent per month for the three months loans and four percent per month for the six months loans. This means that the KCB MPESA monthly loans will now attract 72 percent annual interest rates for the monthly loans, 60 percent per annum for three months loans and 48 percent percent annual interest rates for the six months loans.
At 90 percent and 72 percent annual interest rates, it is very clear that Commercial Bank of Africa and Kenya Commercial Bank are making a kill by over charging ordinary Kenyans through the mobile money loans, a kill that was approved by the Central Bank of Kenya at the inception of these loans.
It might not be possible for Kenyans to shun these loans as they have become accustomed to them. The only way to save Kenyans from the exploitation by the banks is for the government through CBK to regulate the mobile money loans such that no bank is allowed to charge over 36 or 40 percent annual interest rate on mobile money loans.
As for me and my house, I have forthwith withdrawn from partaking on any kind of mobile money loans.