Digital lender Tala extends duration for repaying loans

Digital lender, Tala is targeting more borrowers with longer loan tenure as part of growth in the mass market amid a freeze out of the credit reference bureaus (CRB).

The firm has lengthened period for which loans are issued and repaid to between 15 and 61 days from between 21 and 30 days, which will be operational in February. 

The loans will apply same interest rates of between five prevent to 19 percent over the loan period, varying on customer profile risk, but could go lower to four percent for loans repaid on fewer days.

The firm received Sh16.1 billion in start-up funding from investors such as Kindred Ventures and J. Safra Group in October set for expansion strategy through product innovation and move to new markets.

 “This is part of our next phase of growth and we are offering loans aligned to income levels and long-term loans in future,” Annstella Mumbi, Tala country growth manager said. 

“Customers will be able decide how long days they want to take the loan for and choose their due dates. This is very revolutionary for this market and it came about customers wanting to align their due dates to when they expect payment.”

The fee is calculated depending on a borrower and the tenure hence the pricing is not annualised or monthly as with normal bank loans, and repayment paid as one-off paid on the due date.

This means customer will pay lower if they chooses to repay within a shorter period.

Ms Mumbi said this is expected to push average interest rates charged to 11 percent from when also majority of mobile loan borrowers accessed at 15 percent on average on the previous tenure.

If grace period elapses, a one-time late fee of eight percent is charged.

As a result, the firm will also introduce longer-term loans from July next year, increasing loan limit from current maximum of Sh30,000 and have two and three instalments for repayment.

“This is still in development. It will allow customers to take loans and pay in instalments as we see increased usage by MSMEs,” she added.

This comes amid rules barring the unregulated digital lenders from blacklisting defaulters, only accessing a borrower’s credit information from a CRB with the express consent of the borrower and Central Bank of Kenya.

This has restricted Tala to using in-house machine learning model that uses data points issued by borrowers to make decision on whether to lend to a customer and remain in business.

It also comes after CBK was allowed to start regulating digital lenders by March 23, after the signing into law the Central Bank Bill, 2021 in December. 

The Central Act, 2021 states that the digital lenders will have to be licenced, provide names and addresses of the shareholders, and disclose sources of funds invested in the digital credit provider to the banking regulator.

The digital credit provider are also not allowed to share customer information with any person without the customer’s consent.

The Digital Lenders Association of Kenya (DLAK) said they support the regulation under the purview of the CBK, enabling the provide access to capital to individuals and small business entrepreneurs.

“We look forward to working with the CBK on its implementation of the digital lending framework as we pursue our shared goal of advancing safe financial opportunities for all Kenyans and cementing Kenya’s global leadership in financial inclusion and innovation, as well as spur more investments in the industry,” DLAK has said.  

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