CBA maintains M-Shwari is not capped

The Commercial Bank of Africa (CBA) may shut down its M-Shwari mobile loan service if forced to apply interest rate cap to its service.

The bank maintains the central bank it approved the use of a facility fee rather than an interest rate and is thus not subject to the new Bank Amendment Act.

CBA Group Chief Executive Isaac Awuondo says the service is designed as a short term credit facility that is totally different to the other mobile loans offered in the industry.

“We’d have to evaluate it because we designed the product recognizing that it’s a short term loan driven by the fact that it meets a short term need for any of the customers that want to access the product. Secondly it’s not available for more than a month,” Mr Awuondo said during an interview on Citizen Business Centre.

CBA charges a facilitation fee of 7.5 percent for a one month loan, while all other banks apply the current 14 percent interest cap on the mobile loans.

Mr Awuondo said with banks feeling the squeeze on margins, it would be necessary for financial institutions to design credit facilities that offer liquidity support to businesses.

“There has to be recognition that the risk profiles of people will be different, the needs will be different and each product must be designed to suit the needs of the customers in their segments,” he stressed.

Commercial Bank of Africa has been at the centre of controversy with its stance that it charges a facilitation fee rather than interest rate.

The Consumer Federation of Kenya at one point threatened to take legal action against banks that were yet to price mobile loans in line with the interest cap law.

CBA has 16 million active M-Shwari users, processing 70,000 loans on a daily basis.