Nairobi — Buying electricity tokens on credit has been revealed to be the most expensive form of digital lending in the country.
This according to a report by Kenya Bankers Association study that reveals that 'Okoa Stima', an app that allows users to borrow electricity and pay later attracts up to 43. 4 percent interest rate.
Okoa Stima allows you to borrow any amount based on your pre-determined credit limit where your limit is determined on your previous encounters with Kenya Power.
Under Okoa Stima facility, electricity consumers get credit of between Sh100 and Sh2,000 to settle power bills.
Defaulters are compelled to pay a penalty of 10 percent in advance and later on expected to repay the loan within 7 days.
Under the report dubbed Digital Credit, Financial Literacy and Household Indebtedness Pesa na Pesa charge interest rate of 43.4 percent while Kopa Chapa at 38.8 percent.
Pesa Pata was ranked fourth at 30.4percent followed by Kopa Cash and Tala 15.3percent and 12.7percent respectively.
The Kenya Bankers Association report also indicates that increase in digital credit uptake has raised concerns on how borrowers have access to all information regarding digital credit.
This is because the rate at which Kenyans are defaulting continues to rise.
"The risks associated with unsecured digital lending necessitate lenders to reduce their risk exposure by charging fees and interest rates that are relatively high as compared to conventional loan products," KBA says in the study.
The findings in the report further revealed that those who have used the digital lending apps have little knowledge about interest rates.
The current legal regime of the digital lenders, which is outside the direct remit of the central bank, allows providers, both banks and others, to escape the government cap on interest of four points above the state benchmark interest rate, which now stands at 9 percent and caps credit cost at 13 per cent.