“I do not think anyone in Nigeria needs persuading of the need for urgent action on the environment. Desertification in the north, floods in ... the centre, pollution and erosion on the coast are enough evidence. For Nigeria, climate change is not about the perils of tomorrow, but what is happening today,” President Muhammadu Buhari said during the UN Climate Change Conference (COP26) in October. And today means Nigerians are finding it increasingly hard to afford basic food items.
Only Kenyan lenders which are licensed to take deposits are subject to central bank regulation, and only these lenders qualify for support from the country’s central bank. That’s even more worrying as credit-only microfinance institutions (MFIs) target loans to the “bottom of pyramid”, made up of the people most financially affected by COVID-19, says Habil Olaka.
- Those who lend to MFIs may not have incentives to give waivers, he said.
- MFI lenders “don’t have a fall-back position. They are relying on shareholders or access in the market.”
- Without outside regulation, the MFIs themselves can “easily become undisciplined.”
The same applies to mobile money lenders, who are also unregulated, says Olaka, a former director of operations at the East African Development Bank. “The debate should be about bringing them under the regulatory framework. There’s a need for a way for regulators to touch all the players.”
Proponents of microfinance loans argue that high interest rates are needed to enable the industry to gain scale and so achieve wider financial inclusion. Critics says that means the costs of developing a new industry are in effect passed to those least able to support them.
In January, Opera a provider of short-term mobile loans in Kenya which is traded on Nasdaq, rejected claims by Hindenburg Research that annual lending rates alleged to range from 365% to 876% were predatory.
Opera denied that it had broken any rules. But the rulebook which Hindenburg argued was being breached was not that of any Kenyan regulator – but Google Play Store, which is used for distribution but which does not allow short-term loans.
Kenya’s central bank in April ended the ability of unregulated digital and credit only lenders to give information to credit reference bureaus in response to customer complaints.
- That means the lenders can’t blacklist customers who are unable to repay.
- But without directly regulating the lenders, there may not be much more the central bank can do.
Kenyan banks overall are “not doing exceptionally well,” says Olaka. “Most borrowers are affected one way or another” by the pandemic.
Non-performing loans (NPLs) at banks are “beginning to inch up” with some customers asking for restructuring, adds Olaka.
- Banks need to be careful not to risk turning a health crisis into a financial one by lending too much, he says.
- Banks should “support the recovery, but not at the risk of losing their own shirt.”
- Olaka expects that the expansion of Kenyan banks abroad will slow down. Equity Group’s decision to shelve plans to buy Atlas Mara’s banking units in Zambia, Mozambique, Tanzania and Rwanda sends a signal, he adds.
- As long as the pandemic continues and containment measures remain in place, borrowers will have problems meeting their obligations, notes Olaka.
- But central bank waivers on the classification of NPLs is helping to limit the problem, he says.
Credit-only MFIs “don’t have the same latitude as banks.” They will find it “a lot harder to overcome the crisis.” That means “life may be tougher” for MFI borrowers, compared with those with a bank loan says Olaka.
He gives the example of South Africa’s National Credit Regulator, which registers industry participants and investigates complaints, as an example which could be followed.
Stronger regulation of lending-only MFIs would be a positive result of COVID-19.
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