Digital loans will now bear the brunt of the 20pc tax on fees and commissions earned on bank credit that took effect on July 1st.
All or a significant portion of fees charges on mobile loans provided by KCB, NCBA (M-Shwari), Absa Kenya, Co-operative Bank, and Equity are considered facilitation fees.
This means that the entire loan or a huge proportion of it will attract the 20pc fee, increasing the cost of mobile digital advances by a larger margin compared to ordinary bank credit.
“The cost of mobile loans will be higher compared to the normal loans because charges for digital products are dominated by fees,” a CEO of one of the top banks told Business Daily.
The NCBA Group also said that all loan-related fees and commission will be subjected to the 20pc excise tax, including M-Shwari and the overdrafts feature Fuliza
The increase of the loan fees comes after President Uhuru Kenyatta assented to the law returning the 20pc tax on all fees and commissions.
The excise duty on normal loan fees will see banks pay the Kenya Revenue Authority (KRA) more than Sh7 billion annually, making credit costlier as lenders transfer the burden to borrowers.
But the taxman looks set to generate more from the digital loans because they generate bigger fees and are costlier than conventional credit.
The CBK also wants to regulate monthly interest rates charged by the digital mobile lenders and borrowers’ non-performing loans if a proposed Bill before Parliament is adopted.
